Use Freight Classification Criteria to Lower Shipping Costs
High gas costs translate into high shipping costs, but manufacturers needn't passively accept this. Those companies that learn how less-than-truckload (LTL) carriers classify freight can modify their shipping processes to lower shipping costs. That requires research into the complex, ever-changing freight classification rules set forth by the National Motor Freight Traffic Association, an organization that most LTL carriers belong to.
Freight Classification Criteria
Shipping costs are a function of more than just distance, weight and fuel surcharges. Carriers classify shipments based on their makeup, which includes how they're packaged. Under the National Motor Freight Classification (NMFC) system, products fall into one of 18 categories, based on the following characteristics:
- Density. This is the primary determinant of freight class. It's a function of the shipment's length, width, height and weight. As density decreases, freight class and rate increase. Consider ping-pong balls, which fall within the highest class (500) because they have virtually no density. A truckload of ping-pong balls may have very little weight, but it's a truckload nonetheless.
- Stowability. This refers to the relative ease of stacking containers inside the truck. Awkward containers may be hard to safely stack, thereby limiting the extent to which drivers can utilize vertical space.
- Handling. How easy are containers to move in and out of the truck? Long, bulky cargo may incur extra handling charges or lift gate fees.
- Liability. High value products that are at risk for theft or damage incur higher freight charges. Carriers will assess the likelihood of theft or damage, including damage one shipment might cause to another. For example, dangerous chemicals warrant a higher classification than nuts and bolts.
Freight classes range from 50 to 500. The lowest freight class (50) includes durable, low-value items that fit easily on a standard-size pallet. The lower your freight class, the lower your freight rates will be per hundredweight (and vice versa).
Lower Freight Class Equals Lower Freight Rates
One way to lower shipping costs is find ways to lower your freight classification. Creative shippers work the NFMC system to achieve the most cost-effective class code, without compromising on protection from damage or loss. Here are some innovative solutions:
Specify a low "released value." A manufacturer can state a released value on its bill of lading that's below the minimum valuation for its usual freight class. By limiting the value of the shipment, the manufacturer may qualify for a lower classification — but beware, the shipper will also recoup only the stated released value if the shipment is damaged or stolen.
"Bump" density. If you're close to the cutoff for the next weight class, most carriers will automatically move your shipment to the next weight class to lower costs. You can do the same thing with density-based products, such as most household goods and construction materials.
Commonly referred to as "bumping," you may qualify for a lower freight classification by artificially inflating the density of your shipment. Depending on how the numbers play out, paying for a higher density may reduce your overall shipping costs (because the freight rate is lower). The tricks are to disclose the real density and weight on your bill of lading and to follow other NMFC rules. You can only bump up to the next lowest class, however.
Rethink packaging. How you package a shipment affects its ease of handling, stowability and susceptibility to damage. For example, pallets can be used for large, bulky items to improve handling. Flat-top containers are easier to stack, which may require products to be shipped partially unassembled. Bundling small shipments into one large shipment may qualify your package for a lower weight break. Conversely, splitting up large shipments into a few smaller ones can minimize oversize charges and lift-gate fees.
Well-packaged shipments are also less susceptible to being damaged — or to causing damage to another shipper's package on the same truck. So, limit overhang on pallets and secure pallets with banding or shrink-wrap. Packaging that violates NMFC rules may eliminate the carrier's liability from claims.
A bill of lading is the contract between you and your carrier that specifies details of what's being shipped, including its freight class, dimensions, value, point of origin and final destination. You're generally required to attach a bill of lading to every shipment, but many carriers recommend that shippers use two labels, one on the vertical side and the other on the horizontal side.
Manufacturers are responsible for confirming the accuracy of the bill of lading — and this liability may extend to shipments made using a bill of lading generated by a third party logistics (3PL) company. Errors and omissions can be costly — and they may also delay delivery.
Carriers have the right to question freight classification, weight, density and other details listed on a shipment's bill of lading. A commodity's NMFC may fluctuate over time, so make sure you're atop the latest rules. Arbitrary use of the freight all kinds (FAK) classification may seem like an easy solution, but it could cause you to overpay for shipping.
Adjustments may be required if the bill of lading is incomplete or inaccurate. You may incur reclassing and change fees, as well as carrier-specific penalties, on top of incremental freight charges, if a shipment moves a more expensive freight class or weight break.
NMFC's "Fantastic Four"
Remember the four NMFC criteria discussed above. Together, they provide a systematic framework for lowering freight costs. If you find freight classification confusing, you're not alone. Manufacturers can contact an attorney or accountant who is familiar with the ins and outs of the NMFC rules for help. He or she can audit your existing shipping processes to identify mistakes, as well as opportunities to lower your freight charges.