Eye on Logistics

Freight Class Changes Went Into Effect in August…Is Your Organization Ready?

Okay, so this topic may not start out as the most interesting read, but bear with me…it contains important information if you ship via LTL, or if you just want to understand LTL a little better.

The National Motor Freight Classification® (NMFC®) is the standard guide used to classify commodities being shipped via LTL, which, in turn, determines the applicable rate and charges. There are 18 different classes ranging from class 50 to 500. The higher the freight class, the higher the freight charges. But how does the freight class get assigned?

The Commodity Classification Standards Board (CCSB) is the entity responsible for maintaining the commodity descriptions, classes, rules, and other items relevant to the classification of items in the NMFC. They utilize several characteristics of the commodity when determining class. Some factors include the ease of handling and stowability. Is the product oddly shaped, hazardous, or fragile? Is it extremely long, heavy, or have a stacking restriction? If so, those would be factors that may necessitate a higher freight class be given to a commodity.

Liability is another factor that is considered. Items that have an increased risk of theft, are perishable, easily damaged, or have a high value will likely have a higher class.

Lastly, density is considered. Some commodities are given a single freight class. However, some commodities could be assigned density-based classes if the commodity isn’t fairly represented by a single average density. If an item is subject to density, it could have a few ranges or be based on a full density scale, which was typically represented by 9 different classes based on the pounds per cubic foot (PCF) of the shipment. However, an 11-class scale was implemented in 2014. And to answer the question you may now be thinking of…Yes, this means the freight class can be different on shipments of the same commodity because the PCF is different from one shipment to the next.

Now, here is where things get interesting. The CCSB makes revisions to the NMFC annually for the addition of new commodities or to amend existing classifications. Many items remain the same freight class for years, but could be altered to a different class or become density-based. There are several items, such as the prevalent Plastic Articles category – NMFC 156600, that just changed in August to the full density scale based on 11 different classes. What does this mean? Well, shipments of the commodities in question with a PCF of 22.5 to 30 will rate at class 65 instead of 70. Shipments of those commodities with a PCF of 30 or greater will rate as class 60 instead of 70. Great news, right? Well, it’s not all good news. Those with a PCF between 4 and 6 will now rate at class 175 instead of 150.

The true impact of this change will depend on the typical size of the orders being shipped. For one company, this may reduce your freight expenses, while others will see charges increase.

A change in freight class means systemic, procedural, and, perhaps, contractual changes are needed. If your organization needs assistance in evaluating the impact, or with management of this change, please contact C&C Logistics Consulting. You can visit us at http://www.cclccorp.com.

Using TMS to DOCK-ument Effectively

My previous article posted earlier this year discussed some of the functionality, and the primary reasons, for which companies will elect to utilize a Transportation Management System (TMS). Let’s talk now about an additional component of TMS and how it connects across the organization.

A TMS may offer a dock management tool. Some may think it is “a nice extra”, but not that important in regards to overall functionality or essential to the business. Let’s look at how it may be used as an effective tool in your organization.

All inbound and outbound delivery appointments can be entered in the dock management application. It’s important to capture as much information as possible, such as trailer number and the number of pallets being delivered or loaded out for effective labor management. Perhaps you want to capture driver names and identification information so staff knows who is expected on property. It’s recommended that contact information for the carrier be captured, particularly for those carriers for which your organization does not control the freight. This could prove useful in the event that you need to contact the carrier if they are late with their load or, should a disaster or weather event arise, it may be necessary to implement business continuity processes, which should include the ability to contact all carriers to reschedule appointments or divert freight as needed. Capturing the seal number may be relevant for comparison with the original bill of lading, especially if tampering of the load is ever suspected. If loads require temperature control, then you may also want to capture the temperature reading of the trailer upon arrival to be unloaded or loaded.

We talked about capturing the appointment time. It is also quite relevant to capture the actual arrival and departure time. If you utilize a guard shack, be cognizant of the fact that the time they record a driver checking in or out may vary from the actual completion of loading or unloading the carrier. The Shipping and Receiving teams need to record the actual time the driver backed into the dock and what time the load or unload was complete. This information is imperative in validating whether detention fees are owed or not and monitoring carrier performance. Should there be loads not controlled by your organization, this also allows you the insight of what carriers are being utilized by vendors and how their performance relates to your contracted partners.

For inbound loads, clearance verification for items that require approval or release from government agencies should also be captured.

On outbound loads, be sure to capture the seal number placed on the outbound trailer or container.

With the visibility of the inbound loads, it also allows your organization to be a good partner and effectively utilize those carriers on outbound loads. This allows for operational efficiency and, typically, reduced costs from the carriers.

Effectively utilizing a dock management tool can play a significant role in managing an organization’s operation and expenditures. As indicated, it can assist with labor management, business continuity, security procedures, quality and regulatory compliance, and controlling costs. Perhaps a dock management tool is an essential “must have”.

 

To review the previous article regarding TMS, click here: http://eyeonlogistics.com/2015/01/21/what-is-this-thing-called-tms/.

What Is This Thing Called TMS?

TMS is an acronym that stands for Transportation Management System. There are many Transportation Management Systems available on the market with a variety of capabilities. There are a couple of basic functions that shippers will tend to look for when exploring the purchase and implementation of such a system.

The first desired functionality is shipment optimization (carrier selection). Shipments, or orders, will typically go through the TMS to be routed with the appropriate, least-cost, carrier that can meet the desired service. The TMS can look at the details of a specific shipment to make a carrier selection. For example, let’s say you have five contracted less-than-truckload (LTL) carriers. Carrier A offers the greatest discount to the destination zip code; however, this shipment will end up being a minimum charge and Carrier B has the lowest minimum charge. The system will know to route this to Carrier B. Now, let’s say the same shipment will also need a liftgate and inside delivery service. The system now determines that Carrier C is the least cost carrier once the accessorials (surcharges) have been factored into the equation. The system will optimize and select the least cost carrier based on the individual shipment characteristics (origin, destination, freight class, weight, and accessorials).

A TMS also incorporates transit times. This allows a carrier to be selected that can meet the desired service. A higher price carrier may be needed to make service, but this is now a conscious decision for a reason that can be captured.

The second functionality shippers often look for in a TMS is shipment consolidation. This allows a batch of shipments, or orders, to be analyzed simultaneously and consolidate multiple shipments together that are destined to the same location. The system should consider the requested delivery dates when consolidating shipments. This may take what would have been many parcel shipments and consolidate them into an LTL shipment or may take many LTL shipments and consolidate them into a full truckload shipment. Shipment consolidation drives down shipping costs. Keep in mind that in order to allow the system to find the most opportunities for consolidation and savings, it needs the benefit of time. Orders that are sent or processed same day will have limited, if any, opportunity for consolidation.

Additional, and sometimes overlooked, benefits of consolidation include operational efficiencies. Being able to pick to a pallet instead of, perhaps, 50 individual packages is much more efficient. There is now one tracking number to monitor instead of 50. Not only does this mean operational efficiency for the shipper, but also for the consignee. The consignee can now receive one pallet with their entire order versus numerous boxes that may or may not deliver on the same day.

While a transportation management system typically has a lot of functionality, the ones discussed above are a couple of the primary functions typically required of a TMS. They drive significant cost reductions, thus providing a timely return on investment.

Know the “Rules” or You May Pay the Dues

The truth of the matter is that there are some shipments that will simply cost more to deliver due to the nature of the product and special handling requirements, such as shipments that require expedited service or temperature control. However, sometimes people think they know what the transportation charge will be only to find out the cost was much higher than anticipated. Often overlooked culprits are the accessorial fees or surcharges.

All carriers will generally have a Rules Tariff or Service Guide that lists all the additional services and associated fees, as well as how they may address specific situations when handling the freight. The carriers will typically take a general rate increase, also known as a GRI, on an annual basis. It is, therefore, important to evaluate the Rules Tariff or Service Guide annually to determine if any of the changes will have a service or financial impact.

Different modes of transportation have various types of fees for the additional services they provide. Some fees may be similar in nature across various carriers and modes of service. For example, some less-than-truckload (LTL) carriers assess a high-cost delivery region surcharge for areas that may be remote or that may be difficult to deliver to, such as zip codes in Washington, D.C. or in New York City. Parcel carriers will assess a delivery area surcharge, or even an extended delivery area surcharge, for such destinations. These fees are similar to the beyond fees charged by freight forwarders that were discussed in a prior post.

However, it’s worth noting that not all carriers charge for the same accessorials, and even when they do, the fee may vary significantly between them. For example, not all LTL carriers charge a high-cost delivery region surcharge. Even when two different carriers do charge for the service, it’s important to review when the fee is applicable. Not only may the fee itself be different, but one may assess the fee to more destinations than the other.

Not understanding the “rules”, and their associated fees, could be quite detrimental. For example, let’s say your manufacturing facility has been running behind and decides to work a weekend to get product shipped out to customers. They plan to prepare 1,000 parcel cases for shipping. They could pack the orders and ship them on Monday and meet the delivery requirement, but they thought it would be even better if they could ship them out on Saturday. They place a call to their parcel carrier to ask if those packages could get picked up on Saturday. The carrier promptly replies “Yes, we can pick those up for you”. However, they fail to mention that there will be a fee…on each and every package! That decision just cost you an extra $16,000.00!

While discounts off a published freight rate are important, don’t discount the importance of understanding the carrier’s rules tariff. It may cost you if you don’t.

Location, Location, Location…

Selecting where to conduct business, or possibly even where vendors are located, can have a dramatic impact on a business. Businesses typically consider such things as availability and amount of tax incentives, labor rates, availability of an educated and trained workforce, and proximity to customers or potential for new customers. One factor that is sometimes overlooked, or not considered relevant to its full impact, is the impact on transportation expenses. Let’s look at a few considerations in relation to how location impacts transportation costs.

The origin location plays a factor in determining the applicable destination zone for parcel shipments, which is used to determine both cost and transit time. Distance between the shipping location and the destination will determine cost for LTL and truckload shipments, as well as transit time.

Carrier availability and resources, and the carrier cut-off times, are key factors as well. Are there enough carriers to partner with in the vicinity? Do they provide all the services necessary and have the appropriate equipment available? What are the daily cut-off times to tender the shipments?

Inbound freight, whether domestic or international, should also be considered. Location of vendors plays a key role for various reasons. Let’s say you are a manufacturing facility and the entire system could be down if a critical part fails. What if the vendor of the part is in a remote location that adds a day of transit; thus, increasing your cost because you have to pay beyond or inland fees, which can be quite substantial? This has now not only impacted your transportation cost, but this could shut down the operation. What is the lack of productivity or sales costing the organization?

In addition to the freight charge, there are various accessorial fees that can be incurred. The beyond fee previously mentioned is but one. A few others include delivery area surcharges on parcel shipments and high cost delivery region charges on LTL shipments.

When importing from other countries, the location of the shipper or manufacturer could add transit days and costs as well due to being in a remote location. Not only should distance, from a time and cost perspective, be considered, but the infrastructure within the country and availability of necessary equipment and resources as well. For example, if the product needs temperature control, what is the availability and cost of temperature controlled trailers? Do there tend to be Customs delays? What is the duty rate for the given commodity to/from a specific country?

Environmental factors and climate can also have an impact. Some may recall the Iceland volcanic eruption in 2010 which grounded much of Europe’s air traffic for a week. Well, this is a possibility again, as Iceland just issued a red alert a few days ago regarding a possible eruption.

Determining where to conduct business, as well as evaluating the location of vendors and manufacturers, can play a critical role in the ability to service customers and in the management of transportation expenditures.

No Surprise…UPS Also Alters Dim Weight Application

As was expected, UPS has now announced that they, too, will begin to assess dimensional weight pricing on domestic Ground shipments less than 3 cubic feet. This will also be applicable on UPS Standard to Canada packages.

There is one difference to note. FedEx’s implementation of dimensional pricing is effective on January 1, 2015, while UPS plans to implement this on December 29, 2014. Depending on your financial reporting cycle, the increased freight expenses could impact your 2014 budget as last-minute packages are shipped at year-end.

As was noted in my prior post regarding the FedEx announcement, the application of dimensional weight pricing will also drive up the fuel surcharge expense since it is a percentage of the freight cost. These increases will be in addition to the annual general rate increase.

For more information about dimensional weight and how it is assessed, see my prior post http://eyeonlogistics.com/2014/03/10/understanding-dim-factors/.
For the details regarding the FedEx announcement, please see http://eyeonlogistics.com/2014/06/02/fedex-ground-altering-application-of-dim-weight/.

FedEx Ground Altering Application of Dim Weight

FedEx Ground recently announced that they will apply dimensional weight pricing on all packages beginning January 1, 2015. FedEx Ground currently only assesses dimensional weight on shipments three cubic feet or greater. FedEx invoices at the greater of the actual weight or the dimensional weight. For more information about dimensional weight, check out the previous blog post from March 10th.

You may recall that FedEx and UPS both reduced the dim factor, which increases the dimensional weight, back in 2011. That announcement was made in the last quarter of 2010, allowing shippers little time to prepare. FedEx has decided to make this announcement much earlier, giving shippers a full 7+ months to prepare.

Let’s examine the potential impact of this change. If we have a zone 5 shipment and utilize a one cubic foot box measuring 12x12x12 with an actual weight of 5 lbs., it would now dim out as 11 lbs. Based upon today’s published rate, the shipment would increase from $9.47 to $10.60, which is an 11.9% increase. This is just the increase based on the application of the dimensional logic and is not inclusive of the associated fuel surcharge increase due to the higher freight charge or the general rate increase that will also be applicable in January.

Though no announcement has been made as of yet, it is likely that UPS will follow suit.