Best Practice Freight Cost Recovery

One of the concepts that many customers talk to us about is how to set up a best practice, automated freight cost recovery process. Some shippers have no opportunity because they deliver to large retailer such as Bunnings and so their freight costs are for the sender’s account and cannot be passed on to the retailers. However, many of our industrial customers still ship to independent stores and distributors and commonly the cost of freight is an additional charge that the receiver pays. It’s these customers that have asked us how to manage the recovery of this freight expenditure in a quick and easy method.

Fixed Shipping Price

Traditionally, the way that shippers have dealt with this issue in the past is by setting a policy that they will charge the receiver a fixed amount per consignment or a certain percentage of the order.  For example, satchels might be $15; up to 5kg, while a carton might be $25; up to 25kg delivered nationally, or, they might have two prices that distinguish between a delivery to the capital cities and a delivery to the regional areas. 

Under this type of policy the shipper makes a determination to charge out each and every order at a fixed price to the receiver.  The advantage of this policy is that it’s relatively simple and, because it’s simple, it can readily be automated.  The disadvantage is that this is an unsophisticated policy that generally results in an unfair impost on the receivers. 

By setting a fixed price based upon an industry standard or a guess as to what is reasonable, the sender may either over-estimate the true cost of the freight, and thereby makes itself uncompetitive in the marketplace, or potentially alienate its current customers by charging over the top freight recovery prices. Alternatively, you can set the freight recovery prices too low and as a result you are now subsiding the cost of freight beyond your intentions and eating into your margins.

Accurate Shipping Price

What’s the alternative? Well, that is to charge the receiver what it actually costs the sender to send the freight.  This way, it’s fair on both parties and one group of customers is not potentially subsidising the other.  This way, the shipper’s customers see the shipper as a credible and trustworthy supplier. Someone who is charging realistic and cost-effective freight costs and not ripping them off or being lazy about how they manage their freight recovery policy. 

Sounds good, but how does the shipper manage to do this? Well they could do it in a few ways.

1. Delayed Invoice of Freight Component

They could take the consignment cost off the carrier’s invoice and then invoice this to the receiver, however, the carrier’s invoice may not be available to the shipper until two or more weeks after the consignment has been sent and this time delay is not acceptable to either the receiver or the sender. The shipper cannot hold invoicing the receiver for several weeks as it would ruin their cash flow and the receiver will not accept receiving a separate charge for the freight several weeks after they have received the goods.

2. Predictive Shipping Invoicing

Alternatively, they can use the data from their carrier invoices and rate cards to examine their costs in a way that predicts what the freight charge will be for each consignment to the various destinations they ship to, and develop a policy and matrix that helps deliver accurate costs of freight. 

The issue here is that developing these financials models is not easy for companies that are not experienced with freight and if you are not reconciling this freight data with what you are actually paying the carrier, how can tell that you are being accurate?

3. Integrate Supply Chain Systems with Dispatcher System

Another option is for the shipper to turn to a freight specialist supplier that can provide a dispatching software system that will accurately estimate the cost of freight for each consignment shipped.  Once this accurate and timely information is available, the data can be exported back to the shipper’s Warehouse Management System (WMS) or Enterprise Resource Planning system (ERP) and this will then allow the shipper to include the estimated cost of the consignment on their invoice, thereby solving any cash flow implications, but also showing the receiver that the freight component charged is realistic and fair.

Daily Freight Recovery Reports

As part of Freight Controller’s Business Intelligence (BI) Reporting package we have the ability to deliver daily Freight Recovery reports that allow our customers to accurately estimate their cost of each consignment and pass this on to the receiver in a timely and automated way.  By doing this, the shipper can turn to their receiver (or customer) and impress upon them that they have a fair and transparent Freight Recovery Policy, which should reassure the receiver that their supplier is one worth working with on a regular basis.

If you would like to create a Freight Recovery process and reporting solution tailored to your business requirements that enables accurate costing on the freight cost component of your orders, please contact us to discuss.

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