The difference between planned and actual transport costs can be significant, so maximum freight recovery is essential.
Freight Recovery - Planned vs. Actual
What This Blog Is About:
The difficulty of factoring in freight costs
Why visibility and analytics are key
Training and shared knowledge reduce costs
What is freight recovery? It’s the difference between the actual cost of shipping merchandise and the freight rate given to a customer. For example, a company gets a shipping rate of $100, and they quote the customer $120. But let’s say the customer requests a lift gate to move freight, pushing the actual freight costs close to $150. In such a situation, what can the company do to recover those $30? Even better, is it possible to avoid it happening at all?
The Difficulty of Factoring in Freight Costs
The bad news is that there isn’t a foolproof method to prevent such losses. But there are ways to minimize and even anticipate them, and as it often happens in the industry, technology is the key to that. Suppose no one in an organization closely monitors this gap between actual and planned expenses, and there is no software to do it automatically. In that case, there will be no way of finding out how much money is being lost for this reason.
An obvious way to recover that difference is to bill back the customer, which is probably the most common way to do it. But there are several problems with this method. For example, for how long is it correct to do this? If a company discovers a difference in freight costs after three months, is it still ok to bill back the customer? What if the difference is due to an error in the sales department? Is it legitimate to pass this cost on to the customer?
Why Visibility and Analytics are Key
In a market with such high price volatility as the current one, the probability that rates have a short lifespan is very high. The influence of this reality on the variation of costs and the difficulty in achieving 100% freight recovery is evident. Especially when there are companies that offer fixed yearly rates to their clients.
How can we predict possible rises? It is vital to anticipate market fluctuations that may increase rates, causing companies to incur freight expenses that will not be recovered if they do not have the right tools to prevent that. The primary weapons are an excellent visibility level and the ability to analyze data to make educated guesses.
The greater the scope of vision on the actual costs compared to those quoted, the easier it will be to recover them.
At this point, visibility and analytics are revealed as two key factors to remedy this situation. The greater the scope of vision on the actual costs compared to those quoted, the easier it will be to recover them. And the organization will also have more and better tools to prevent that situation in the future.
Training and Shared Knowledge Reduce Costs
Another important piece is a good TMS. It is crucial to accurately rate shipments on the front end and have the ability to update accordingly when repeat customers incur additional costs to prevent this from happening on future shipments. This, combined with business intelligence, help keep track of hidden costs. For example, is the company factoring in inbound raw material freight costs? Is it planning and allocating for multi-stop truckloads?
Business intelligence is critical.
Business intelligence is critical. Using the appropriate software to manage rate procurement, businesses will obtain as much data on operations already carried out, anticipate market fluctuations, and give more accurate quotes. Companies can also train sales teams to be aware of shipping costs and the difficulty of recovering differences. And even offer them incentives aimed at achieving that desired 100% freight cost recovery.
A sales team disconnected from the logistics process and unaware of its costs can become a major problem. That is why everyone in an organization must know these costs in detail and be aware of them when preparing offers for clients or offering discounts. As we have already seen, the freight recovery process tends to take time, which can cause uncomfortable situations with clients who do not expect these extra costs if they have not been notified about it.