How Freight Density Affects Your Supply Chain
Freight density is one of the most discussed topics in the freight world today as it becomes more and more important to carriers and shippers alike. This is primarily because in the past five years there has been a shift in how commodities are classified, adding density subgroups rather than simply set freight classifications.
This change in the industry has caused major problems for shippers, while carriers seem to be reaping all the benefits. In this article, we will discuss the common issues shippers are facing with freight density and the most effective ways to rectify them.
Freight Density: The Basics
Freight density is the space an item fills in relation to its weight. The space a shipment occupies has become just as important to carriers as weight because they want to move as many as shipments as possible to garner the best return on each load.
You can find your freights density by dividing the weight of the item in pounds by the volume in cubic feet (height x width x depth/1,728). The carriers will look at your freight density versus the actual weight of each shipment and decide on the rate from there. Whichever is larger will be the billable weight.
How Freight Density Affects You
If freight density is a new term to you, then you are probably getting hit with major ad bills, and not quite understanding why your month-to-month accounting is off. This can cause major headaches for your accounting department, and make budgeting near impossible.
LTL carriers are equipped with technology that makes it easy to check shipments weight and density, so easy that they’re always double checking to make sure they can’t bump your classification for a higher rate. Carriers have weight scales built into their forklifts that are calibrated weekly, providing accurate measures for each shipment. Most shippers don’t have these capabilities, causing major variances in their weight and classifications.
These variances ultimately result in reclassification ad bills. Ad bills that could not show up on an invoice for months later after you’ve already closed your books for the month that shipment took place.
Freight Density and Freight Accounting
Freight accounting is what gets hit that hardest when a shipper isn’t properly using freight density and weight when classifying their shipments. That’s because if your weight or density is off, the amount the carrier charges will always vary from what you were quoted on the day of the shipment. This causes the auditing process to be much more complex, and more time spent by staff backtracking to update and fixed previously closed monthly books.
For example, a company manufactures and ships industrial HVAC units. In 2016, they were getting hit with hundreds of thousands of dollars in ad bills. They use a 2-teir FAK, and because they weren’t factoring in dimensional weight, they were classifying their freight incorrectly. Once the carriers weight and measured the freight, gaining the correct information, the shipments would be bumped up into that higher priced FAK tier. Then, a month or two later, the reclassification charges would show up on an invoice causing major problems with auditing and budgeting.
So How Does Freight Density Ultimately Affect Your Bottom-line
Now we know freight density can waste plenty of time for a shippers accounting staff, but it can also affect your costs as well.
I know what you’re thinking if you entered your dimensional weight correctly the first time you would still be paying the same amount the carriers are charging you now. And that could be true, depending on who you’re working with.
In the example above, that company was working with a Third-Party Logistics Company (3PL) to manage their freight, including freight pay and audit. Like I stated above, they had tons of reclassifications and ad bills due to not correctly classifying their freight. Well, this 3PL takes a markup percentage every time an invoice changed. Now, that wouldn’t be a huge deal if this was an occasional thing, but with that many changes, it adds up. Make sure this is something that you discuss when choosing a 3PL to work with.
In today’s transportation industry, making freight density a requirement in your warehouse is essential to make your supply chain run as smoothly as possible. Knowing the correct classification from the beginning makes for better accounting principles, budgeting, and forecasting. If you’re interested in learning more about freight density and the best way to implement it within your company, reach out to us here at LTX, we’re happy to help!