It’s difficult to work with what what you don’t have, especially on a production floor. Predictive measures such as stockout calculation and shortage forecasting help solve potential problems before they happen.

How to Calculate Stockout: Essential Methods for Inventory Management

Calculating stockouts is an essential part of continuous inventory management that helps businesses understand the frequency and impact of running out of stock.

A stockout occurs when a product is not in inventory at the time on a production floor or a customer wishes to make a purchase. This can lead to several negative outcomes including lost sales, customer dissatisfaction, and potential damage to a brand’s reputation.

Understanding how to assess stockout situations is crucial for retail and manufacturing businesses to ensure that they are able to meet customer demand and maintain service levels.

To accurately calculate stockout costs, you need to consider both the direct and indirect expenses associated with not having products or raw materials readily available. This involves analyzing lost revenue, potential market share reduction, as well as customer trust and future sales opportunities.

Knowing these figures enables you to take informed actions to minimize stockouts by adjusting safety stock levels, improving demand forecasting, or refining inventory replenishment strategies. Proactively managing your inventory in this way can enhance the resilience of your supply chain and the overall health of your business.

Key Takeaways

• Stockouts can be directly measured by analyzing inventory against demand.
• Accurate stockout calculation includes assessment of lost sales and intangible costs.
• Effective inventory management strategies reduce the likelihood and impact of stockouts.

Understanding Stockouts

In this section, you’ll gain a clear understanding of what a stockout is and its significant effects on your business operations, as well as the main reasons they occur.

Defining Stockout and Its Impact

A stockout happens when your inventory is depleted, and no products are available to continue production. This undesirable situation often leads to lost sales and can severely harm customer satisfaction due to production delays. When customers encounter a stockout, they can’t purchase what they need, which might prompt them to seek alternatives, potentially affecting your revenue and business reputation negatively.

Causes of Stock-outs

There are several key causes of stockouts that you should be aware of to prevent them effectively:

• Supply Chain Disruptions: Issues with suppliers or logistical hiccups can lead to unexpected delays in restocking your inventory.
• Inaccurate Forecasting: Not correctly predicting customer demand can result in inadequate stock levels.
• Overwhelming Demand: Sometimes, a surge in customer interest can outpace your stocked inventory, particularly if a product goes viral or is seasonally popular.

By understanding these causes, you position yourself to address stockouts proactively and maintain a steady flow of business operations.

What are Stockout Costs: Assessing the Financial Impact

When calculating stockout costs, your focus should be on both immediate and long-term financial repercussions. Understanding these impacts allows you to quantify the tangible and intangible expenses resulting from inventory shortages.

Costs Associated with Stock-outs

Stock-outs can lead to a variety of direct costs such as expedited shipping charges, additional manufacturing runs, and the cost of discounts used to appease dissatisfied customers. Indirect costs include the administrative effort to handle backorders and the resources spent to address the shortage. Calculating the cost of consequence is vital: it encompasses the long-term effects of unsatisfied customers moving to competitors.

• Direct Stockout Costs:
  • Expedited shipping fees
  • Additional production costs
  • Discount offers for delayed orders
• Indirect Costs:
  • Administrative labor for handling backorders and stockout situations
  • Lost goodwill and potential future customer churn

Effects on Sales and Revenue

When stockouts occur, lost sales are the most immediate hit to your revenue. Each lost sale is a direct loss of revenue and, by extension, profits that you would have realized. The ripple effect can also lead to a disruption in cash flow, impacting your ability to invest or cover other operational expenses. It’s crucial to quantify loss of revenue not just from a single sale but also from the perspective of lost future sales due to negatively affected customer relationships.

• Immediate Revenue Impact:
  • Revenue not received from current sales opportunities
• Long-Term Revenue Impact:
  • Potential decrease in repeat business due to customer dissatisfaction
  • Compounded effect of negative word-of-mouth publicity

In calculating stockout costs, it’s important to understand that the true financial impact extends far beyond the immediate loss. Your analysis should incorporate both direct and indirect costs to fully capture the consequences on your financial performance.

Inventory Management Strategies

Effective inventory management strategies help you minimize stockouts and maintain smooth operations. Precise management of inventory levels through safety stock and reorder points ensures that you’re well-equipped to meet customer demand without excessive investment in stock.

Maintaining Safety Stock

Safety stock acts as a critical buffer against stockouts. Calculate your ideal safety stock level by considering the lead times of your suppliers and the variability of your demand forecasting. Here are the key steps:

1. Assess your average sales to determine usual demand.
2. Evaluate lead time for receiving products from suppliers.
3. Determine the maximum sales you might achieve and the maximum lead time it could take for products to arrive.

Combine these figures using a safety stock formula to find the right balance that will prepare you for unexpected demand surges or supply delays.

Implementing Reorder Points

Reorder points are essential to replenishing your inventory at the right time. To set effective reorder points, you’ll need to:

• Understand your sales velocity: How quickly your inventory sells over a specific period.
• Forecast demand: Anticipate future sales based on historical data.
• Account for lead times: Know how long it takes for inventory to arrive after placing an order.

With this strategy, you automate the replenishing process, ensuring that you always have products available for your customers without overstocking. Accurate inventory forecasting can increase efficiency in your supply chain management, reducing the stockout rate and enhancing your inventory management system.

Calculating Stockout Metrics

Effective management of stockouts requires a good grasp of specific metrics that can quantify the impact on your sales and customer satisfaction. Understanding and calculating these metrics allows you to make informed decisions to minimize stockouts in the future.

Formula for Stockout Rate

To determine the frequency at which stockouts occur, use the Stockout Rate formula:

Stockout Rate = ( \frac{\text{Total Stockouts}}{\text{Total Sales}} ) × 100

For example, if you have 10 stockouts in a period and 500 sales, your stockout rate would be ( \frac{10}{500} ) × 100, which equals 2%. This means that for 2% of total sales, your customers encountered an out-of-stock scenario.

Determining Lost Sales

Calculating the cost of stockouts involves analyzing production or sales data and average units completed or sold per day. To estimate the impact on revenue, you can use the following formula to understand the lost sales during the period of being out of stock:

Lost Sales = Number of Days Out of Stock × Average Units Sold Per Day × Price or Profit Per Unit

In addition to lost revenue, consider the cost of consequences, which can include customer dissatisfaction and potential long-term impact on customer loyalty. By maintaining accurate sales records and understanding your daily sales velocity, you can calculate these lost sales more precisely and develop strategies to mitigate stockouts in the future.

Keeping an eye on such metrics not only arms you with valuable insights into your inventory’s health but also points towards areas needing improvement in your logistics and demand planning.

Enhancing Supply Chain Resilience

To maintain customer loyalty and protect your brand reputation, enhancing supply chain resilience is crucial. It involves a strategic approach to mitigating disruptions and leveraging advanced tools for demand forecasting.

Mitigating Disruptions

Your operations must be ready to handle unforeseen supply chain disruptions effectively to stay ahead of competitors. Develop a robust backup plan that includes diversified suppliers and underutilized production facilities that can be activated quickly if needed. Integrating automated processes to identify and respond to risks can save crucial time and resources. Here are a few specific steps you can take:

• Identify potential risks: List possible events that could disrupt your supply chain, from natural disasters to supplier bankruptcy.
• Develop a response strategy: For each identified risk, create a plan detailing how your business will continue operations.
• Test your plan: Conduct regular simulations to ensure your backup plans are effective and your team is well-prepared.

Leveraging Forecasting Tools

Accurate demand forecasting forms the backbone of a resilient supply chain. Use sophisticated forecasting software to analyze data and predict customer demand patterns. This will help you keep optimal stock levels without overinvesting in inventory. Steps to improve your demand forecasting include:

• Collect historical data: Gather past sales data, market trends, and seasonal fluctuations to feed into your forecasting tools.
• Implement forecasting software: Utilize modern tools that can analyze vast quantities of data for more precise predictions.
• Continuously refine your forecasts: Regularly update your data and adjust your forecasts to reflect market changes or new trends.

Frequently Asked Questions

When calculating stockout costs and assessing the potential risks, utilizing concrete data and established methods is crucial. This section answers some of the most common questions to guide you through the process of understanding and managing stockouts effectively.

How do you calculate stockout cost using historical data?

You analyze past sales patterns, inventory levels, and customer purchases to determine the financial impact of stockouts on your business. This involves reviewing instances when customer demand was not met and estimating the loss of revenue and additional costs incurred.

What methods are used to assess the probability of a stockout occurring?

Statistical analysis and forecasting models are employed to evaluate the likelihood of experiencing a stockout. These methods include inventory turnover ratios, lead time analysis, and service level targets to predict future inventory inadequacies.

What is the formula for determining the risk associated with stockouts?

The risk of stockouts can be quantified by considering the cost of lost sales, additional shipping charges, and customer dissatisfaction. A basic risk formula might incorporate the potential sales loss multiplied by the probability of the stockout event.

In inventory management, how can you quantify the cost associated with stockouts?

To quantify stockout costs, combine the potential revenue loss from unsold goods with the expenses related to expedited orders or emergency restocking. This gives you a monetary value of the impact stockouts have on operational efficiency and profit margins.

Can you provide examples of how stock-out costs impact business operations?

Real-world consequences of stockouts can range from immediate loss of sales to long-term damage to brand reputation and customer loyalty. Operational impacts may include increased labor cost to manage backorders and inefficiencies in supply chain management.

What are the common causes of stockouts and how can they be mitigated?

Common causes include forecasting errors, supplier delays, and higher than expected customer demand. These can be mitigated through better demand forecasting, implementing just-in-time inventory, and maintaining safety stock levels.

Contracting the ideal logistics services you want starts with clearly defined RFP and RFQ communications beforehand. What do these terms mean and how do they differ?

Understanding the Logistics of RFP and RFQ: What They Mean And Why They’re Important

During the process of procuring logistics services, RFPs and RFQs are initial documents used for different purposes. Knowing their differences, when and how to use them is essential if you want your operations to run as intended without wasting resources. In this article, we’ll help you to better understand the key differences between an RFP and RFQ and why they’re so important in laying a solid logistics partnership.

What are the Key Differences Between an RFP and RFQ?

The key differences between an RFP (Request for Proposal) and RFQ (Request for Quote) lie in how and when they come into use. As a purchaser begins to investigate solutions to the problems of procuring logistics products and services, there are a series of steps that satisfy specific purposes along the way. These steps come in the form of official communications between the purchaser and the contractor or vendor.

In terms of sequence, RFPs and RFQs occupy the middle to end portions of the procurement process. In the early stages, an RFI (Request for Information) is often the starting point for gathering information on various suppliers or vendors and their capabilities. As the solutions to the project’s needs become more clearly defined, so do the type requests.

Depending on the breadth and scope of the project, there can often be intermediate requests designed to get a clearer picture of a vendor’s capabilities. For example, the purpose of an RFT (Request for Tender), which typically falls between an RFP and RFQ, is to do exactly that; put a finer point on a supplier’s price points and qualitative attributes.

In short, the main difference between RFP and RFQ is that during the procurement process an RFP precedes the RFQ in sequence. In other words, an RFP is sent when a business needs more detailed information about the supplier whereas an RFQ is sent when a business has a clear idea what they want and only needs specific information on pricing.

Definition of a Request for Proposal (RFP)

A Request for Proposal (RFP), also referred to as a Request for Offer (RFO), is an official document a business uses to request bids from potential suppliers or vendors. Frequently used in the logistics and transportation industry, purchasers use it to obtain information on services provided by third-party vendors for freight and delivery needs.

A typical RFP in logistics allows the opportunity for potential vendors to provide details in bid form outlining their services, timelines, pricing structure, and other relevant information that helps a company determine who best fulfills their needs.

Definition of a Request for Quotation (RFQ)

A Request for Quotation (RFQ) is a request made by customers to suppliers asking for formal quotations on certain services or products. Specifically, the request for quote in logistics details the project’s scope, quality requirements, delivery deadlines, payment terms, and other qualitative information. Ultimately, the winning supplier is the one that satisfies all requirements and offers the best price.

In the logistics industry, an RFQ also plays an important role as it allows vendors and suppliers to better judge the demand for their products or services in the current supply chain environment. This feedback can be used to help suppliers set prices accordingly.

RFP vs RFQ and How They Work in Logistics

RFP and RFQ negotiations in terms of logistics cover multiple aspects of a supply chain. For example, creating typical logistics RFP and RFQ requirements can be broken down into logical series of questions:

What’s being shipped?

• Declared value
• Weight
• Dimensions
• Freight class

Where is it being shipped?

• Points of origin and destinations
• Transportation lanes and region details
• Commodity

How much is being shipped?

• Lane level volumes
• Shipment frequency

Are there special considerations?

• Drop trailer requirements
• Dock hours
• Fuel surcharges

What’s your preferred tendering process?

• Term duration
• Response deadline
• Preferred tariff
• Average lead time

Depending on your type of business, the process of making RFP and RFQ formal requests for logistics services may place more emphasis on certain qualifiers. For instance, in the fresh produce industry, shipping and delivery times are critical points of interest.

Advantages of Using RFPs and RFQs in Logistics

The use of RFPs and RFQs in logistics provides a greater scope of solutions, their specific details and insight to the companies that provide them. While both request types involve a competitive vendor selection process, the main difference is in the level of evaluation criteria used to choose the best bidder for a given job. This bidding process allows the purchaser to evaluate potential supplier abilities to see if they meet a project’s specific needs.

Realizing the advantages of using RFPs and RFQs in logistics can help streamline trucking and supply chain operations by making the most of their resources. Listed here are a few advantages:

• The opportunity to reach out to multiple suppliers
• Effective price comparison
• Cost control
• Market assessment without additional cost
• Supplier and vendor insights
• Competitive bidding
• Quotes for specific solutions
• Potential for future partnerships

Frequently Asked Questions:

What is the purpose of the RFQ process?

The purpose of an RFQ (request for quote), alternatively known as an IFB (invitation for bid), is a formal process whereby a company solicits select suppliers, vendors or contractors to submit price quotes and bids to fulfill requirements for certain tasks or projects.

In the table below, we’ve laid out the basic sequential flow of requests from gathering initial information to obtaining a final quote:

What is the purpose of an RFP?

The purpose on an RFP (request for proposal) is to offer competing suppliers, contractors or vendors the opportunity to to bid on completing a new project issued by a company or organization.

Who writes the RFQ?

The procuring company or purchaser writes the RFQ which is then sent to potential suppliers or vendors the company is interested in working with.

What are the disadvantages of RFQ?

The main disadvantage of an RFQ is that being one of the last steps in the procurement process, it does not encourage suppliers to offer alternative solutions or assessment of qualitative aspects of suppliers such as functional capabilities, experience and references.

Final Thoughts

When negotiating through the RFP and RFQ stages of a procurement strategy, it’s important to keep an overall view of the process in mind:

RFI – Stage 1 of procurement: Gathering general information about a pool of companies, contractors or vendors.

RFP – Stage 2 of procurement: Purchaser requires solutions, has reasonable outline of project scope, requirements, objectives, criteria, and is negotiating, comparing, evaluating vendors.

RFQ – Stage 3 of procurement: Purchaser is committed to buy, specifics are known, has questions on costs and payments, the focus on price, financial factors and finalizing explicit vendor terms.

The above are all individually important processes within logistics which helps businesses identify the best possible supply chain partners to meet their specific needs.

If you’re running a business that produces physical goods, chances are you’re not only dealing with aspects of shipping, but receiving as well.

Given enough time, having a delivery come through your receiving department with obvious damage is going to happen. It could be from long distance wear and tear, improper packaging, mishandling, or any number of other factors.

As mentioned, receiving damaged freight is an inevitability – it’s a frustrating situation for both parties. The best course is to deal with the problem calmly and professionally, without finger pointing and freaking out.

What remains is knowing the best way to through the freight damage claim process. This will not only go a long way in maintaining relationships, but will get you back on track quickly and efficiently.

Here’s what to do when you’ve received damaged goods. Remember to remain even-keeled, document everything and follow the steps below.

Managing the Freight Damage Claim Process

1. Do Not Turn the Driver Away!

When it comes to carriers and freight contracts, these are your partners. Refusing to accept a shipment, even in a compromised condition, will likely only cost you more in the long run.

You might also be subjected to further shipping costs. Do not turn the driver away, instead, accept the freight, damages and all even though it may seem counter-intuitive.

2. Accept the Damaged Goods

By accepting the damaged delivery, you have the opportunity to thoroughly document the specifics. You can then file a claim, and you’ll likely be duly recompensed. Proper records will help determine whether the claimed damage was the fault of the original shipper, such as poor or inadequate packaging.

If the problem occurred during the carrier’s haul, they’ll be found at fault and will have insurance to cover such losses.

If you do not accept the damaged freight, the carrier will have to send it back to their warehouse and store it as the claim is processed – which costs time, increases the chances of further damage, and potentially leads to further charges. It doesn’t do much for the relationship either.

If you utilize a third-party insurance policy outside of the carrier, be sure that your policy does not have clauses that nullify their responsibility to compensate you if you refuse the freight.

Most insurance policies require that you accept the freight, document everything, take pictures, or even have a claims inspector come by to personally verify the damaged product received.

3. Document Everything

Act immediately and takes notes of any damages or shortages. Check the Bill of Lading (BOL) or proof of delivery (POD) provided by the carrier that they’re accurate.

It’s important to not only makes full records of obvious exterior damage, but consider the condition of the contents. Unseen damages that are not apparent at first glance can be hard to prove if the container is more or less in tact. Therefore it’s prudent to fully inspect and record the condition of the packaging and its contents for any undue harm.

In terms of associated paperwork, the Bill of Lading acts as the carriage contract between the carrier and the shipper. Most claims in the US will rely on U.S.C 14706 as the standard for resolving claims disputes, but freight claim laws differ on a state by state basis, and from country to country.

Because the laws are dramatically different when crossing the northern or southern borders, the point of origin will be the deciding factor on the legal jurisdiction that presides over the claim. For example, if a freight shipment intended for Mexico departs from Canada and is damaged or lost along the way, Canadian claims laws will be used in the resolution process.

Take pictures of the damaged goods. Make sure they’re clear, focus on the damage in context, and support your claims. Once you have taken pictures, contact your carrier or freight logistics company and let them know you received damaged goods.

Keep in mind carriers have a legal right to mitigate the value of their claim. This can be done by allowing them to try to make good on the shipment by re-delivering, salvaging, or returning the goods. Consequently, if you don’t give them their opportunity to mitigate or recoup loss, they may have legal grounds to deny your claim.

The time frame is to file a damaged freight claim is generally two weeks. Some carriers may allow longer claim times, or utilize different methods to prevent missing freight. regardless, the moment you realize you have a claim for damage on shipped goods goods, alert your carrier.

Be diligent in following up, it’s your responsibility, not theirs. Moreover, a properly annotated BOL is regularly used as proof of delivery and condition. Fill it out and then contact the claims department for additional freight claims procedures and paperwork.

It’s also important to be clear in your description of how the external damage instigated further harm to the internal products. There’s a big difference between goods that leave the factory in an already compromised condition, and those that become damaged through handling during the shipping process.

4. Keep the Freight and Packaging

It may be inconvenient to store the damaged freight, but it’s important that you do. Remember, the carrier has the right to inspect the damage in person and the right to salvage the damaged freight. Not allowing them access for inspection could result in only partial compensation or outright denial.

However, in cases such as food spoilage or hazardous materials, disposal laws may supersede the carrier’s right to salvage. Regardless, they still do have to be notified first to give them the opportunity to act.

5. Protect the Freight from Additional Damage

Receiving damaged freight unfortunately means it’s also your responsibility to not aggravate the problem. Store the received damaged goods in a safe place and do everything you can to keep the shipment from suffering further damage.

Put the received damaged goods out of the way of normal operations to avoid having to move it again. By reducing handling, you decrease the odds of further damage.

6. Pay the Freight Charges

There are requirements that claims be filed along with a copy of the paid freight bill. Regardless of who is at fault, refusing to pay the freight bill can hurt your claims resolution.

Moreover, you’ll show a sign of good faith and cooperation by paying the freight bill immediately. Consider this tactic a necessary step towards a full recovery of everything owed back to you.

7. File a Freight Claim Immediately

As with coordinating documentation, filing the freight claim should be done as quickly as possible. According to the Carmack Amendment, a carrier within the United States has to acknowledge a claim within a month of the initial filing.

Subsequently, a written final disposition has to be handed over within a three-month period. Following that, the claimant will have two years to dispute the disposition.

Remember, time in freight claims procedures is not your friend. If you file a claim after the initial claim period, that claim will be automatically voided.

8. Understand Maximum Liability Amounts on Freight Claims

Within Canada and Mexico, carriers are responsible for a permanent dollar per pound rate – unless the two parties had a prior agreement on a higher rate. Currently the rate in Mexico is fixed at 2.8 ¢/lbs, within Canada, the rate is $2 CAN/lbs. If the carrier is found liable within the United States, the carrier is responsible for the actual value of the lost or damaged freight.

9. Keep Copies of All Records

For convenience, refer to this checklist if you received damaged freight:

• Copies of photos depicting the damage
• A copy of the packing slip
• Bill of Lading copy
• Paid freight bill copy
• A copy of the invoice showing the price paid for the damaged goods received
• A standardized claim form which identifies the shipment and the states the claim amount.

Once all the records and documents are compiled, put them in an appropriate folder and keep it where you’ll have quick yet secure access to it. With an overabundance of precise evidence available, you serve yourself in strengthening your claim.

Remember, Receiving Damaged Freight Is Just Another Process

You will inevitably receive damaged freight, you’ll likely be annoyed, frustrated and frustrated. But logically, think of it as a part of doing business, have a process in place to accommodate the disruption – a plan B.

Managing your freight claims efficiently can save you both time and money. Document everything and understand the process. File your claim as soon as possible and be sure that you know how the freight claims procedures work according to your contract with your carrier.

Follow the steps and you can make the normally difficult situation of receiving damaged freight as stress-free as possible.

Logistics and Brokerage in a Global Economy

To start with, logistics companies control the movement and storage of goods, services, or information within a supply chain. Their strengths lie in the planning and implementation of delivery between the points of origin and final destination.

Brokerage firms can play an essential part in extending the relationships needed to move products cost-effectively throughout the supply chain.

Depending on their specific expertise, logistics companies and their partners manage some or all of these supply chain functions, depending on a client’s logistical needs.

Logistics is a term with its roots embedded in the military. During wartime, supplying troops with related equipment and associated supplies in a timely fashion is a function of logistics. With the rise of consumerism in the 1950’s, logistics evolved to serve more complex supply chains growing nationally.

This process of coordinating the movement of supplies and materials has now become globalized. in today’s world of business, particularly in the movement of physical goods, the supply chain is a vital part day-to-day operations.

A comprehensive supply model may include:

• transportation
• shipping
• receiving
• storage
• management of all or one of these functions

Additionally, logistics operations may also apply to:

• information
• transportation
• inventory
• warehousing
• material handling
• packaging
• disposal
• and security needs

3PL vs Freight Broker Services

Defining the Difference Between a 3PL Company and a Brokerage Firm

The terms 3PL and freight broker often get used interchangeably. But this creates confusion which comes at the expense of how each service is actually defined.

Third Party Logistics companies and Freight Brokers are both intermediaries between the shipper and the carrier. And there is a difference.

A freight broker focuses primarily on meeting specific cost and service goals associated with a singular shipment.

A 3PL provider works more strategically in the context of a bigger picture. By planning earlier in the supply chain, they anticipate the needs of a client through every step of the supply chain process from pickup and transport through to delivery.

What is a Freight Broker

As mentioned previously, a freight broker will often focus on one single shipment. The broker will act as a non-asset bearing intermediary between a shipper who has products to transport, and a carrier who actually moves the freight.

Essentially, a Freight broker networks directly with owner-operators nationwide to coordinate the individual shipments. Currently, freight brokers handle a significant amount of motor carrier transport in North America.

In terms of operations, freight brokers provide a large network of shipment options by connecting with hundreds, or even thousands of small to medium-sized freight carriers.

This benefits shippers by affording alternatives to larger freight carrier and cargo providers. Smaller independent carrier operations tend to rely more on brokers for business compared to larger carrier providers who will often have long standing relationships with 3PL companies.

What is a Third Party Logistics Company

In a previous article, we defined the role of logistics in the supply chain, but in its broadest form, 3PL applies to any service contract that involves storage or shipping of a product.

A 3rd party logistics company may have the flexibility to only offer a single service, like transportation. Or they may have multiple warehouses in Austin Texas, or specialize in inventory management.

A comprehensive 3PL company may also offer a system-wide, front-to-back bundling of services and management of a client’s entire supply chain.

By integrating operations such as warehousing and transportation, many 3rd party logistics companies tailor services to match a client’s needs.

Finally, a typical third-party logistics company is an asset-bearing firm that establishes relationships with shippers on a broader scale. Compared to brokerage alone, a 3PL company makes an investment in physical and human capital, including brick-and-mortar locations and wheels on the ground.

Why Combining Brokerage and 3PL Services Makes Sense

Shippers looking for the benefits that come with a collaborative transportation network will find that a 3PL fits their needs. However, freight brokers can play an important role in relation to shippers with already established 3PL relationships.

For example, if a shipper needs greater flexibility in moving their products, they may contract with a brokerage firm to supplement their shipping needs. When capacity is tight, a brokerage firm that has a long-standing relationship with a 3PL provider can pose an advantage.

For your own company, it’s not about choosing between a 3PL or a freight broker. It’s about establishing relationships with both entities, 3PL companies and freight brokerages alike, in the interest of reducing overall shipping costs.

As a small business owner, you probably find you often have to handle some level of inventory management, distribution logistics, and warehousing yourself. You may already engage in most of these functions internally.

A a business grows and becomes more complex, third-party logistics providers are the frequent solution to more complicated procedures. For example, deciding to export your products may require you to hire a person or organization that helps with distribution logistics.

Let Brimich Logistics Give You the Advantage

The streamlining, consolidating, and outsourcing of your logistics processes can result in significant long-term financial savings, and better overall client service.

Connect with Brimich to learn more about what a logistics company is, and specifically does to provide value.

We’re here to help you with your overall shipping needs across North America and beyond. It’s our goal to provide you with the best possible customer service!

What is the Difference Between Freight and Regular Package Shipping?

Are you shipping packages and parcels, light-weight items or heavier products?

Package and parcel delivery have a few discrete features different from freight shipping. Depending on what it is you need moved, either freight or regular package shipping may be better for you, but which one?

Learn about freight vs regular package shipping and see how a strategic LTL or FTL ally can help your goods move.

It’s common for small businesses that aren’t familiar with these types of services to get confused. Let’s consider freight and regular package shipping, and see what might work best for your business.

In the simplest term, freight shipping is useful when you’re shipping palletized items whereas package shipping might be useful when shipping one-off items.

Freight Shipping in a Nutshell:

• Larger loads, such as palettes of products that’ve been packaged together or wrapped as one or more.
• For a typical large haul trip, loads can range from weights between 5,000 to 70,000 lbs.
• It could take 1-3 days for a delivery to be made
• The truck can be larger than 58-feet
• Hundreds of miles can be covered in one trips
• Oversized loads such as heavy equipment can weigh well over 110,000 lbs.
• Usually making one trip, from point A to point B

When is Freight Shipping a Good Choice?

Freight shipping is the perfect choice when you’re moving larger loads than any other form of road transport can deliver. When you need a transport service that can ship multiple tons of product from one point to another ,either for a client or for your own business, then freight is the only realistic option.

You can deliver many of thousands of pounds to your own warehouse from your production facility. If for instance, you need to move a large quantity of inventory from one warehouse to another, this is by far the best option.

When you simply have too big a load to make with a small truck, larger trucks can be your saving grace. Another way to look at it is you have gone beyond the typical LTL service and into TL territory.

For another example, if you require moving of a large piece of machinery, rather than breaking it up into parts, a freight truck can lift the load all in one go to determine whether it needs to be.

Freight shipping is typically used by large businesses that need to move large quantities of products to their depots. Moving straight from their own manufacturing plants, they transport large amounts of product.

These items could be cars, food, raw materials, crude, etc, which is shipped to a depot. From there, smaller trucks then distribute the loads to businesses and or local storage facilities.

The Basics of Parcel and Package Shipping

• In terms of capacity, a package truck can have anywhere between 50-100 parcels depending on the average size.
• Individual package loads are typically less than 150 lbs.
• Small parcels and packages are the main contents of a package truck
• Trucks are usually no longer than 28-feet
• A package truck will make multiple stops throughout the day, as in a milk run, delivering orders to customers at their door.

When is Package and Parcel Shipping the Better Choice?

As mentioned above, package shipping is a shipment that is under 150 lbs. However, it can be considered light freight. Most package companies will consider it a larger package load.

Package shipping is mainly used for courier services. These are the many smaller delivery trucks you’ll see on virtually any street. Such vehicles are a medium to small van or truck, delivering products door to door.

Consider the kind of truck you see pull up to your home when you have ordered something from Amazon, this is package delivery.

Regular package shipping is also usually restricted to local areas. Therefore unlike freight hauling, the service is for a local area, such as a city, town, or rural zone.

Smaller parcel shipping should be reserved for businesses that are fulfilling product delivery to customers’ doors. However, the service can also be used to move inventory from warehouse to warehouse though usually reserved for a local area.

Still Need Help? Get a Hassle-Free Freight Quote Today

If you still have questions understanding the differences when it comes to freight and regular shipping, let an experienced partner handle your next freight shipment.

Brimich Logistics is an expert when it comes to 3PL and freight shipping. From small business to medium and large-sized business that require reliable large load shipping services, we have served our clients with pride, expertise and consistency.

Looking for a dependable partner to move your products? Brimich Logistics handles truckload and less than truckload shipping. Just let us know when and we’ll handle the rest.

Until we get passed the worst of the current pandemic waves, making smart decisions under the circumstances can make the difference between whether your business just survives, or thrives.

Setting the World Stage

When it comes to shipping, the fluctuations in the costs of moving your products can be directly tied to how large beneficial cargo owners (BCOs), negotiate their import shipping rates.

When these mega-businesses, like Walmart, Target, Best Buy etc, decide to accept higher freight rate contracts, which they recently have, the trickle-down of these decisions ultimately affects small and medium size businesses.

In fact, the latest 2021 rates for BCOs’ contracts with carriers contain freight rates that are essentially double the rates they negotiated for last year.

Along with labour shortages and an increased demand for shipping in general, this means things are changing, and will continue to change.

Therefor it’s even more crucial to get help with supply chain management from the experts. An experienced 3PL provider will act as an extension of your business to optimize your supply chain, handle the ins-and-outs of your daily shipments, and react accordingly as the fluid landscape of shipping continues to change.

5 Reasons Why You Should Outsource Your Logistics to a 3PL Partner During Covid-19

1. Stop Stressing on Shipping Details and Focus on Top Level Business Decisions

Have you calculated how much time you’re spending on supply chain related issues? If so, is it a significant number?

Outsourcing to a 3PL can give you that time back to focus on what you do best, which should be running your business efficiently by focusing on critical decisions.

As many businesses need to pivot at a moment’s notice during this pandemic, these important decisions must be made more frequently.

Therefor, the more time you can spend collaborating, strategizing, and forecasting, the more you can ensure your business stays operating efficiently and profitably.

2. Keep Operations Running, No Matter What

Because of their responsibility to ensure consistent flow of goods such as medical supplies and food products, 3PL’s are deemed an essential service.

At Brimich, we have quickly and successfully adapted to ensure the health and safety of our team and the continuity of your supply chain.

If your office must close due to Covid-19 regulations or outbreaks, we are here as your dependable transportation partner to ensure that your show goes on.

With daily service tracking reports on all shipments, you always have full visibility on your supply chain through our Client Portal. This ensures efficient operations and provides you with the data you need to make critical business decisions.

3. Leverage Tailor-Made Plans Based On Supply Chain Feedback

Experienced Third Party Logistics partners will employ a team of industry experts in all facets of transportation.

For your business, a sales representative will conduct a supply chain audit, consult with industry experts, and put together a fully customized 360-degree plan to move your freight.

A savvy 3PL provider also keeps a pulse on industry news and updates. This is the very nature of their business; to know what’s happening at every level of the industry.

The benefit to you comes in immediate information about supply chain challenges, plus you’re provided with options and alternatives to keep things moving.

With network capacity issues and soaring freight costs during the pandemic, a good team will be dedicated to finding the most optimal way to transport your goods.

4. Scale Your Business Up or Down as Needed

Has Covid-19 allowed your business to reach to new heights? If you’re one of the businesses that has seen good growth this may mean you’re scrambling to figure out how to handle an excess of shipments.

Your best choice of a 3PL partner may have their own assets in terms of transportation vehicles but more importantly, they will have partnerships with a host of vetted transport providers to ensure continuity in your supply chain.

This means you’re not constrained by any volume of freight and have access to a  massive network of vehicles to choose from. Whether you ship 2 orders or 2000 orders a week, a flexible Third Party Logistics provider, such as Brimich, can handle all your supply chain requirements and react with agility to your changing business’ shipping requirements.

5. The Bottom Line: Keep Your Customers Happy

It’s this simple: when your shipments arrive on time and as advertised, your customers are happy.

Happy customers translate to repeat business, word of mouth recommendations, referrals, and an enhanced brand image.

Ultimately, this means more profit for you and your organization. Outsourcing to a qualified 3PL means your shipments will get where they need to be, on time, in good condition, and on budget.

With continuing evolution of the supply chain, customer expectations of fast deliveries right to their door are changing as well.

Thanks to successful models developed by Amazon and eBay, customers are not only comfortable, but prefer to shop online – especially in a compromised environment due to a pandemic.

Because of this shift in how customer’s view shipping, getting your products from A to B, or from the factory to their door is more critical than ever.

Of course your company is committed to excellence and customer satisfaction – that’s a given. Therefor, awareness of the most common shipping mistakes just might help you avoid those awkward moments when a problem does need to be explained.

Mistake #1: Listing the Wrong Address

It seems obvious enough to avoid, but it happens all the time, and at many different levels. It’s a stupid mistake that can cost you dearly and delay your shipment arriving on time.

If you list the wrong address, or if it’s entered incorrectly for you – thanks autofill, your delivery will end up at the wrong place. As a result, it’ll have to be tracked down and re-routed to the right address.

This costs time and resources in re-routing fees, missed deadlines and most unfortunately, unhappy customers.

Mistake #2: Improper Packaging

Sketchy packaging means damaged freight, which means unhappy customers and again, higher costs.

According to experts, the structural integrity of most any shipping container suffers significant break-down over the course of a single journey; and that’s for boxes that are correctly packed and sized.

When the package is NOT sized or sized correctly, the potential for damage rises exponentially. With the amount of time and care you put into creating your fantastic product, why would you risk all that work with inappropriate shipping boxes or using boxes with a sloppy fit?

Of course different products require varying amounts of care and protection, much of which depending on an item’s size, weight, and fragility.

Even with the right packaging, make sure that your goods are secured properly to their pallet: not filled with overhanging packages. Instead, column-stack or interlock-stack goods. Make sure they’re secured with stretch wrap and bands along with cushioning to increase shock absorption, strength, and stability.

A conversation with a preferred carrier will go a long way, and a little extra time is worth the cost of making sure your goods arrive intact and in good condition.

Mistake #3: Bill Of Lading (BOL) Inaccuracies

The key document required for every freight shipment – The Bill of Lading, one of the essential shipping terms to be familiar with, is a legally binding document giving both the carrier and the driver all the details to necessary to process and invoice the freight accurately.

The BOL includes:

• The date of the shipment
• The number of units in the shipment
• The exact weight of shipment
• The Shipper’s and Consignee’s full names and addresses
• The Freight classification for the items being shipped
• Type of packaging
• The declared value of goods
• A description of items being shipped: name and material of manufacture
• A Purchase Order or special account numbers used between businesses for tracking
• Special instructions for the carrier to ensure prompt delivery – such as closing times
• If necessary, a note regarding potentially hazardous materials

Considering the amount of specific information that must be documented, it’s not uncommon for shippers to use the wrong commodity description; enter the wrong piece count; notify party; or fail to read the terms and conditions of the bill of lading just to name a few.

Mistakes like these can be extremely costly and easily avoided by carefully filling out the information. Engaging the help of someone to double-check also goes a long way to ensuring its accuracy.

Going the extra mile may seem unnecessary, but you should remind yourself what’s at stake when things aren’t 100% accurate – your products, and you business’ reputation.

Mistake #4: Incorrect Weight or Freight Class Listing

Yes, it is part of the BOL, but it’s important enough to have its own listing because improperly listed freight class or weight can be a serious and costly mistake.

If you try to guess your shipment’s weight without the aid of a weigh station, you will inevitably receive additional fees – the same goes for improper freight class.

Because a lower class is associated with a lower price, shippers sometimes try to list their shipment in the lowest possible class. But if they’re incorrect, the reclassification fee will be much higher than the margin from one class to another.

This may not seem like a big deal to some, but if you’re shipping hundreds or thousands of freight loads a year, those additional fees can add up fast. Not to mention the damage it does to a reputation.

Mistake #5: No Freight Insurance

In order to cut costs, shippers may opt to avoid insurance. It may be cheaper in the short run, but the law of averages will come back to bite you.

The simple frequency of continuous shipping over time will inevitably lead to damage of one kind or another. It may be it an overturned truck, theft, natural disasters, an accident, or a host of other problems capable of ruining a shipment.

Human error has to be taken into consideration. Plus the likelihood of a mistake occurring increases with travel distance and package handling.

The relatively small price of insuring the goods saves you from worrying about the inevitable mishaps that are bound to happen over time, and save you from what could be financially crippling replacement costs of an entire shipment.

Mistake #6: Not Palletizing

Palletizing takes time and effort, but it’s far better than having a loose stack of packages free to shift around while on route and get damaged.

Furthermore, most LTL companies won’t allow you to ship without using a pallet. If you don’t, they’ll palletize your goods and pass the cost of doing so on to you. While this can be negotiable point, it’s far less expensive to do it yourself.

Mistake #7: Overpaying for Freight

This last “mistake” may seem obvious, but it’s one mistake made far too frequently.

Working with a trusted 3PL partner is one of the best ways to avoid the mistakes listed, and more, and keep your freight costs low at the same time.

An experienced 3PL partner audits your freight invoices to ensure your company is paying the correct amount for your shipments. If in case you are overpaying, they’ll work directly with your preferred carriers to provide accurate pricing, or correct other issues.

Companies with well-oiled supply chains are better positioned to meet consumer demands, especially during times of crisis. Surveys show that during times of crisis, consumers will buy from any brand that can supply essential goods.

Transparent, effective freight tracking helps ensure a positive shipping experience which generates repeat customers – and ultimately benefits your business.

How Does Freight Tracking Work?

In a nutshell, it’s safe to assume a package needs to move from Point A to Point B.

1. Order confirmation. Shippers pick an established, trusted carrier to move their shipments. These can be a third-party logistics (3PL) provider, broker, or carrier directly to move their freight. After establishing the lowest shipping rate, the shipper will confirm the order with the shipping company.
2. Order Numbers. After order confirmation, the carrier assigns each package a Progressive Rotating Order number (PRO) – perhaps the most important element in the tracking process.
3. Bill of Lading. The carrier adds the PRO number to the shipment’s Bill of Lading (BOL). The BOL is a document that contains all of the shipment’s information, including the shipper and receiver’s names, pickup and delivery addresses, dimensions and weight, packaging information, value, and a description of the goods.
4. Generate shipping labels. The carrier combines the PRO number with its Standard Carrier Alpha Code (SCAC) to form a scannable barcode. Carriers place these shipping labels on the outside of each pallet for easy scanning.
5. Freight is ready to ship.

Depending on whether freight moves via less-than truckload (LTL), truckload (TL), or shared truckload (STL) service,

Once loaded, the shipment will either travel directly to its destination or make multiple stops along the way depending on the the method: less-than truckload (LTL), truckload (TL), or shared truckload (STL) service.

Every time the carrier loads or unloads the shipment, the shipping label is scanned. This updates the freight’s location automatically within the carrier’s tracking system, which allows shippers to track freight from pickup to delivery.

Essential Freight Tracking Terminologies

It’s helpful to understand what each delivery update actually means. Here’s a quick shipment tracking glossary for you.

• Estimated delivery: When providing a rate quote, the shipping company gives you an estimated delivery date by estimating the delivery date according to the scheduled pickup date, and the distance to the freight’s final destination.
• Ordered: You (the shipper) have confirmation and agree to use a particular company to transport your shipment.
• Dispatched: The carrier is on its way to the agreed pickup location.
• Picked up: The carrier has successfully picked up the shipment!
• In transit: This lets you monitor your shipment’s last known location, allowing you to watch its progress from pickup through delivery.
• Out for delivery: The shipment is out for delivery, and will arrive that day.
• Delivered: The carrier has successfully unloaded the shipment and delivered it to its final destination.
• Shipment delayed: This could happen for any number of reasons, and may be within or outside of your control. Investigate the cause of delay, then inform the rest of your supply chain partners so they can prepare for a change of plans.
• Refusal by consignee: Again, there can be several reasons for a consignee delivery refusal. For instance, the consignee may require a delivery appointment (which should have been noted), or may require a liftgate (and the delivery truck lacks one).

The Differences Between TL, LTL, and STL Tracking

If you fully understand LTL and TL shipping methods, it may be immediately apparent why TL tracking is more accurate than LTL shipment tracking. If not, more:

LTL

Despite low costs and its appeal to shippers that aren’t able to fill a complete truck with their freight, standard LTL shipping is a bit convoluted.

LTL freight travels through the hub-and-spoke system on its way to delivery, stopping at multiple hubs and terminals and trans-loading at each one. The very nature of this method increases the risk of damage along what can be a convoluted route.

In context, LTL tracking is about as complex as the network it travels through.

TL

TL shipping is also known as “Exclusive Use”, from the fact that the truck moves freight from a single shipper without shared delivery space.

TL shipments are load-to-ride, meaning once a package enters the truck, it doesn’t exit until it reaches its the final destination.

Because the freight is only handled at its origin and destination, the risk of damage for exclusive-use shipments is far less than that of LTL shipments. TL tracking is also much more accurate than LTL tracking thanks to minimal number of stops and parties involved.

Ever since the Federal Motor Carrier Safety Administration (FMCSA) mandated the use of electronic logging devices (ELDs) back in 2015, tracking truckloads is more accurate than ever.

ELDs automatically record and upload truck locations to carriers’ fleet management software, helping dispatchers stay on top of truck status in real time.

With this accurate tracking technology, locating TL freight (which never leaves the trailer) is easy, especially when compared to pinpointing freight moving via LTL service.

STL

Shared truckloads move LTL freight using the TL method, meaning packages only load and offload once therefor avoiding trans-loading at terminals.

Because shared truckload shipments skip the hub-and-spoke system entirely, they’re much easier to track than LTL shipments.

Final Thoughts On Freight Tracking

As you can see, freight tracking requires a significant amount of expertise and technology. As a business owner though, a better understanding of the landscape, and the pros and cons of its methodologies, will ultimately help you make better, qualified decisions.

At Brimich Logistics, we dedicate ourselves to providing our shippers with the best, most frictionless experience possible. Contact us today for a quote!

Have you looked at your shipping processes in order to save money and control overhead? As a small business owner, there’s a chance you may be spending too much and not getting nearly enough in return.

Smart shipping management requires a basic understanding of industry terminology. The small investment in the time it takes to familiarize yourself with industry-specific jargon will pay dividends by reducing miscommunication.

If your company doesn’t have its own shipping department, you should be aware of shipping terms and conditions, especially before conducting direct imports. No one expects you to learn all the intricacies, but knowing the basics will keep you out of the dark, and out of trouble.

Therefor, here’s a quick reference sheet you can refer to to acquaint yourself with what may be some unfamiliar shipping terminology.

Shipping, Freight, and Logistics Terms

1. Accessorial Charge

   Additional fees charged for add-on services or equipment required for the delivery of your cargo.

2. Backhaul

   When a driver transports cargo during the return trip of a commercial vehicle, is known as a backhaul. This helps the cargo vehicle maximize their trips.

3. Bill of Lading

   A document issued by a carrier to a shipper, signed by the captain, agent, or owner of a vessel. Furnishing written evidence of receipt of the goods (cargo), the conditions on which transportation is made (contract of carriage), and the engagement to deliver goods at the prescribed port of destination to the lawful holder of the bill of lading.

4. Customs Broker

   An individual or firm licensed by, in this case by U.S. Customs & Border Protection, to act for importers in handling the sequence of custom formalities and other details essential to the legal and speedy exporting and importing of goods.

5. Carrier

   A legal entity or entitled individual in the business of transporting passengers or goods for hire. Shipping lines, airlines, trucking companies, and railroad companies are all carriers.

6. Container

   A single rigid, sealed, reusable metal box in which merchandise is shipped by vessel, truck or rail. Ocean shipping containers are generally 20, 40, 45 feet long. Ocean freight container types include: standard, high cube, hardtop, open top, flat, platform, insulated, refrigerated, etc.

7. Detention

   The process of holding a carrier’s driver and/or truck trailer beyond a certain stated period of “free time”, often resulting in the assessment of detention charges. The delay in clearing goods through customs resulting in storage and other charges. The prevention, by government authority, of a vessel and/or cargo leaving port.

8. Cartage and Drayage

   Cartage is the movement of goods for short distances, usually by truck. It is also referred to the charge to pick up, move and deliver good short distances.
   Drayage is the charge made for hauling freight or carts, drays or trucks.

9. Freight Forwarder

   A person engaged in the business of assembling, collection, consolidating, shipping and distributing less-than-carload or less-than-truckload freight. Additionally, a person acting as agent in the trans-shipping of freight to or from foreign countries and the clearing of freight through customs. Often including full preparation of documents, arranging for shipping, warehousing, delivery and export clearance.

10. Hazmat

    Short for “hazardous materials”, which essentially is any material that could cause potential harm to anything or anyone it comes into contact with. Special endorsements are needed from all parties involved to legally transport hazardous materials.

11. Incoterms

    Short for International Commercial Terms, which are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC). Incoterm define basic shipping terms.

12. Intermodal

    Cargo that is shipped using multiple forms of transportation, such as rail transport and cargo trucks.

13. Lane

    A regular route of transportation taken most often by commercial transporters.

14. LTL (Less Than Truckload)

    A shipment weighing less than the weight required for the application of the truckload rate. These smaller shipments are often combined to create full truckloads.

15. Lift gate

    A mechanism on the back of cargo trucks that allows the driver to load and unload goods more easily. A lift gate is usually required for shipments picked up or delivered to a destination with no shipping dock.

16. Parcel Service Failure

    When you order an item from a retailer, you’re effectively creating a contract between the two of you, even if it’s not written down. If your parcel is late you may opt to contact the courier first, even though it’s the retailer you will need to deal with in order to get compensation. Alternatively, there is a parcel failure refund service, which identifies late or lost deliveries and guarantees your shipment will arrive or be refunded to you no matter what happens.

17. Reefer

    A temperature controlled container that keeps cargo such as food at the proper temperature throughout the transportation process.

18. Shipper’s Agent

    A shipper’s agent is not a carrier, freight forwarder or broker. Shipper’s agents generally arrange for truckload or container load shipment transportation. Shipper’s agents commonly provide services related to warehousing or loading and unloading.

19. Tariff

    A Tariff is a document setting forth applicable rules, rates and charges (often in the form of additional taxation) to move goods. A tariff sets forth a contract for the shipper, the consignee, and the carrier

20. Tender

    A fixed price offered to move cargo.

21. Third-Party Logistics (3PL)

    A term used when distribution services are outsourced through a third-party. Brimich Logistics may be considered a third-party global logistics company.

22. Transportation Management System

    Often abbreviated to TMS, this is specific software that allows freight forwarders to easily analyze and automate transportation operations. It’s especially beneficial for companies handling large amounts of commercial cargo.

23. Truckload (TL)

    Large-volume shipment from a single customer that weighs more than 10,000 pounds or takes up a complete trailer space so no other shipment can be loaded.

The Benefits of Working With a Freight Broker

For a small business, a freight broker can eliminate a lot of the anxiety surrounding freight shipping.  Therefor it’s helpful to have a good handle on basic terminology.

Speaking the same language will ensure clear communication and hopefully as mentioned, prevent misunderstandings.

In order to understand your business’ shipping costs, and avoid eroding your profit margins, you’ll first need to know what shipping class or classes your products fall into.

The next step is to find out who you can partner with to do the heavy lifting. Professionals you can trust to provide the service you deserve and ship your goods cost-effectively.

Navigating the Uneven Sea of Trucking Rate Estimates

Unfortunately for manufacturers seeking standardized pricing, there is no single monopoly in the freight industry. While some exceptionally large branded carriers try to stifle competition to become a one-stop-shop for freighting, the shipping industry remains very diverse.

This may be due to the very regional nature of shipping. Certain companies are geared towards servicing small areas and are therefor capable of managing them meticulously.

The diversity in freight service may also be the result of the infrastructure that has evolved within the industry. Historically speaking, there was no one single ‘railway’ that made more sense than all the rest.

Today we’re left with a multilayered, multifaceted industry that can’t really answer the ‘how to estimate freight shipping costs’ question with one harmonized explanation.

While there are some consistencies that different freight providers adhere to, what you wind up estimating for your shipping costs may be subject to significant changes. This is due to broker recommendations, what a carrier may offer you, what a 3PL provider may quote you, and so on, through the various levels and types of freight services.

Still, you need a place to start, which leads many businesses inclined to ask: is there at least some kind of standard pricing system?

Start With Standardized Freight Classes

What does freight class mean?

Founded in 1956, the National Motor Freight Traffic Association (NMFTA) created a list of 18 different freight classes which serve as categories for different types of shipments.

This system is now is one of the few facets of the industry we can confidently say has been standardized. Not only are the classifications regarded as law, but they’re used as reference points for every cog in the machine.

No matter what region of the industry you’re working in, these defined classes are going to to dictate the pricing estimates for each type of shipment.

Along with these 18 different freight classes,

There also exists categories for different types of hazardous material, and a further taxonomy for cargos that are shipped LTL (less than truckload). That being said, these additional classes are somewhat rare and not often integrated.

Most importantly for the purposes of this article, every freight shipping contract must have a freight classification declaration. Hence, you have a starting point.

Freight Class Examples

How Does Freight Class Help Me Estimate My Shipping Costs?

The freight classifications set forth by the NMFTA work to negate randomness and thus promote consistent pricing across the industry.

By categorizing broad types of cargo together, it provides a shipper, carrier, or anyone between them with an idea of how much it’s going to cost to ship the materials. It also gives an idea of the degree of difficulty required to execute the shipment.

In practice, an experienced professional will recognize that a shipment in the 50 class is going  to be an inexpensive cargo like sand that fits perfectly onto a pallet. Likewise, with a freight class of 500 then the same individual will know it’s a material similar to ping pong balls and, though not nearly as heavy, be comparatively expensive to transport.

You can reason then, by knowing which class or freight classes and the details of the specific categories your products fit into, you’re one step closer to estimating the ‘general expense’ of your specific cargo.

The next question is then, how do you determine your freight classification?

Calculating a Freight Classification

Calculating the freight class of a product depends on: physicality, storability, handling, and liability.

In particular, the physicality of a product has one deciding factor that is a combination of height, width, depth, and weight measurements – and that is density.

Density is the primary key in determining any product’s freight class.

Using a combination of the above factors, a shipper can then calculate a freight class, which helps estimate their freight shipping cost. Or at the very least provide a general idea of how it’s placed within the industry.

That being said, it is advisable to have a professional assist in the calculation process. One small error can mean the difference in overpaying or paying more later.

Create a Regional Freight Grid Estimate

With the freight classification identified, you can then move forward by creating a regional grid estimate.

Although time-consuming, the result can produce an above average shipping estimate. the methodology is to research local or regional shipping solutions to gain an understanding of their prices and schedules.

The drawback is that it’s virtually impossible to calculate all the fees, extra charges and changing regulations with these ‘overt estimates’ .

Shipping Costs and Location

Location is unanimously going affect the price across the entire industry. It’s simply common sense that the further the freight has to go, the more expensive it’s going to be.

Using a Freight Broker Makes Calculating Shipping Costs Easier

Keep in mind, your time is valuable, not everything in shipping needs to be DIY to move your company forward. Considering the complex nature of the shipping landscape, hiring an industry guide makes your job that much easier.

From broker, forward, to third-party logistics company, a qualified professional should be able to evaluate your freight properly, assign the right freight class, and generate accurate shipping estimates.

These liaisons exist for this very reason; to provide accurate information to both parties and create healthy relationships between shipper and carrier.

There are plenty of ways to estimate your freight shipping costs but these liaisons exist for this very reason. They provide accurate information to both parties, create and maintain healthy relationships between shipper and carrier

Estimating Shipping Costs Efficiently

Calculating freight shipping costs and estimates using freight rates and common shipping rates can definitely be a challenge. But it is totally do-able.

Using the methods above will help provide at least a ballpark understanding of pricing, and engaging professionals can accurately generate estimates that can help you save on shipping costs.