Negotiate FAK or bleed to death

If you ever reconciled your shipping costs on a product level - you`ve ineviteably seen situations when Chair A costs you $50 to deliver and Chair B of the same weight shipped from the same manufacturer only $15.

These single incidents start happening daily as you grow. Shortly you lose control over your shipping costs and can`t tell anymore if you should be selling this product line at all.

The underlying issue is the way products ship. Chair A ships fully assembled while Chair B ships flat. Subsequently, Chair A eats much more space and is graded differently according to the NMFC classification.

Here is how volume density translates into freight classes:
Class 70 or below.. over 15 pounds per cubic foot
Class 85........... 12 to 15 pounds per cubic foot
Class 100.......... 8 to 10 pounds per cubic foot
Class 125.......... 6 to 8 pounds per cubic foot
Class 150.......... 4 to 6 pounds per cubic foot
Class 250-500...... Under 4 pounds per cubic foot


In our example, Chair A is rated as Class 250 while Chair B as Class 125. Difference in classes translates in 3X difference in shipping costs unless you have negotiated FAK (Freight All Kind) with your carriers.

Of 50,000 SKUs you sell -> 10,000 SKUs shipped LTL -> 1,000 SKUs with high classes (and 3X the shipping cost). The more you grow - the more you bleed.

Most reasonable arrangements I`ve seen is
FAK 70 for Classes 70-150
FAK 150 for Classes 150 - 500

If you ship one or two of these chairs with UPS Ground or FedEx Ground - the same issue has a different name - Dimensional Weight. A 30 lbs assembled chair will be rated as 70 lbs.

In my experience, lack of FAK with LTL carriers costs you much more than suboptimal Dim Factor with UPS or FedEx. Therefore, focus on FAK first and negotiate Dim Weight with Small Package shippers once you collect reasonable shipping history.

Good luck.

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2 Comments:

Anonymous Anonymous said...

This is great information thank you.

August 12, 2011 at 10:10 AM  
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