PMC Logistics Reveals 5 Secrets of Negotiating Freight Rates

Shipping experts tell how to cut freight costs through up front preparation and negotiation.

October 12, 2004 -- Everythings negotiable. The person who first spoke those words may have been talking about politics, but that attitude also applies when it comes to shipping product in or out of your facility says Tom Dromey, principal of PMC Logistics (www.pmclogistics.com), a third-party logistics provider in Plymouth, MA.

Because of the fluid and constantly changing nature of the transportation industry, freight rates have never been cast in stone, but are generally open for discussion, says Dromey. That said, it can go both ways.

Dromey cautions that, unless you are prepared and knowledgeable about the carriers and their respective services and rates, you could end up paying more than necessary. But if you do your homework and know what to look for and what to ask for, you may be able to gain more favorable rates.

According to PMCs Dromey, here are five key issues that you should be aware of when negotiating with LTL (less than truckload) carriers:

1.    Classification The National Motor Freight Classification committee has assigned every item that is shipped via an LTL carrier a specific classification. Based on an evaluation of density, stowability, ease of handling and liability, products are grouped into one of 18 classes. Simply put, the lower the class, the lower the rate.

Essentially, the easier it is to handle your freight without damaging it, the lower your rate should be. If you misclassify your freight you may end up paying more than you should. Consult the NMFC (www.nmfta.org) to find the appropriate classification for your freight otherwise the carrier will assign one and thats never a good idea. It pays to know the correct classification of your materials.

2.    Rate Base and Discounts Most carriers have their own specific set of base rates which, by the way, change all the time. Ten different carriers can have ten different rates for a shipment between Boston and Chicago, and the difference between them can be as much as 25%. Thus, in order to compare different discounts offered by various carriers you need to know each carriers base rate. This is critical, as the 50% discount you were offered by one carrier could prove to be a better deal than the 55% discount offered by another carrier, all because the second carriers base rates were higher.

3.    Good freight vs. Bad Freight Admit it, you thought, freight is freight. Well think again. There is freight the LTL carriers want and freight they dont want. Theyll take it all but they will charge a premium for the freight they dont really need. You need to know where your shipments fall so you can sell your freight to the carriers. Weight, density, susceptibility to damage and loadability are significant factors in determining what kind of freight you have. In addition, you need to know if your shipments are traveling in lanes where the carriers need freight versus lanes where the carriers dont need freight.

4.    Data You can never have enough. A good negotiator is one who is well armed with historical data. Shipment size, frequency, weight, origin and destination zip pairs as well as freight characteristics and class breakdowns are all extremely important to bring to the table. A lack of data will result in the carriers making certain assumptions about your freight and those assumptions will most often end up in decisions that wont be in your favor.

5.    Accessorial Charges Most people think once the rates and discounts have been agreed upon that the deal is done, but that isnt the case. Accessorial charges include inside delivery charge, single shipment charge, weight and inspection charge, hazardous material charge and numerous others, are charges that are not discountable. If you are not careful they can have a significant impact. Once again, you need to have data to rely on. How many of your shipments require special instructions and what are they? Accessorial charges, like anything else, are negotiable, but carriers wont be willing to negotiate if you cant provide the historical data.

For additional information contact PMC Logistics at (508) 830-1100, or visit www.pmclogistics.com.

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