A couple of weeks ago, I wrote a blog about the new pricing processes that LTL (and small parcel) carriers are employing to improve the profitability of their operations. I noted that freight carriers are emulating some of the activities that have been undertaken by the airlines such as dynamic pricing (i.e. adjusting rates based on time of day and day of the week) to increase yields on their freight activities.
Similar to the airlines, in recent years, LTL carriers have become more focused and aggressive in seeking payment for additional services (that have distinctive cost elements) that have been offered at no charge or at less than full cost recovery in the past. Many carriers have been focusing on inefficient shipper practices or administratively costly tasks that drive up their costs. They have been turning to their customers to compensate them.
In this blog, I will provide a set of questions that shippers should ask themselves and their customers to understand the current shipping processes that are precipitating accessorial charges and the costs that are being incurred. In the next blog, I will provide some general practices that shippers can employ to mitigate these costs.
Why do Accessorial Charges Exist?
It is important to understand that freight rates cover the basic costs of picking up, loading, linehaul from origin to destination, unloading and delivering freight including all direct costs (i.e. billing). The basic freight rate does not include the costs of delivering to an apartment building or to a retail store in a mall, delays at origin or destination or redelivery to a second address. It is also important to understand that freight rates are based on averages (i.e. average time to make a pickup or delivery) or standard business practices (i.e. live load, dock is level with back of a 53 foot trailer). In many, but not all cases, deviations from these norms are caused by shipper inefficiency or by deviations from normal business practice (i.e. delivery to a jobsite, special equipment to perform unloading, delivery to be performed during the night or on weekends etc.).
Just as the airlines are now charging for meals and extra or oversized bags, freight carriers are becoming more diligent at identifying and charging for the non-standard requests and/or inefficiencies created by shippers. So here are some steps to take.
Step 1 – Do an Internal Assessment?
The first step in reducing accessorial charges is to gain an understanding of all shipment preparation, pick-up and delivery processes that may be contributing to accessorial charges. From your company’s TMS or accounting system, assemble data for the past year on accessorial charges paid, by carrier, by cost item (i.e. waiting time). These are the questions that need to be answered as you perform this exercise.
1. How much am I paying for accessorial charges and what are the most frequent charges that are being assessed to my company?
2. Which carriers are assessing accessorial charges (and which ones are not), how much do I pay each carrier and why are these charges being assessed?
3. What are the dimensions and density of my freight? What could be done to improve the density and packaging of my freight?
4. Is my shipment paperwork accurate, complete and ready when a carrier arrives at my loading dock?
5. How long does it take for a carrier to pick up freight at my dock? Is there any type of specialized equipment needed to load my freight?
6. How many times a day does the same carrier come to my loading door and if more than once, why?
7. How many times a week does my freight go to non-standard delivery locations (i.e. job sites, apartment buildings) and what can I do to reduce or eliminate some non-standard deliveries?
8. What equipment and processes are required to deliver my freight at each of my customer’s locations? At which locations are non-standard or longer than normal delivery processes involved?
9. Are delivery appointments required and which customers do not honor these appointments? Have I been assessed any fines for late deliveries in the past year, where are these late deliveries occurring and why?
Step 2 – Analyze your Data
Take the time to speak with your traffic manager and dispatchers and ask them any questions to which you don’t know the answers. Once you complete this survey, prepare a summary of your findings. Prepare a list of the most frequently paid accessorial charges by carrier, by customer. Drill down to gain a full understanding of why each of these charges is being assessed. In next week’s blog, we will work through a process to mitigate some of the additional charges.
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