Costs Are on the Rise
The current state of the transportation market is uneven. With an ever-growing increase in online delivery and a driver shortage in effect, transportation costs are soaring. As customers’ expectations around delivery continue to rise, shippers will have to balance delivery cost, accuracy, and speed in order to get ahead of their competition.
As shippers analyze their carrier performance and accumulate shipping data for their new carrier bids, it’s vital to understand how accuracy around factors such as National Motor Freight Classification (NMFC) and Operating Ratio weigh into your pricing evaluation.
What is the NMFC?
When pricing your account, carriers typically look at several factors so they can form a projected Operating Ratio (O/R). With capacity utilization at an all time high, carriers are always looking for opportunities to maximize space, and will adjust your O/R accordingly.
One of these factors, The National Motor Freight Classification (NMFC), is a standard outlined by the National Motor Freight Traffic Association (NMFTA). The NMFC consists of 18 different classes, on a scale from 50 to 500.
The NMFC classifies freight based on the following factors:
- Density: How much space will this good occupy in a truck, compared to how much weight will it add?
- Stowability: What conditions does this good need while in transport? Most don’t need any special conditions, but those that do, may cost extra as a result.
- Handling: Will moving these goods be potentially hazardous for those involved in the process? The higher the risk, the higher the cost.
- Liability: The likelihood of damage, destruction, or theft happening to the product while it is being shipped. The difference between shipping bricks and mirrors.
Class 50, often referred to as “clean freight,” consists of high density and extremely durable goods that are frequently shipped on pallets. This classification usually contains the lowest associated freight costs because of their size and low risk.
On the other end of the spectrum is class 500, which consists of low-density goods or rare/high-risk commodities that are expensive to ship via freight. This class could include anything from ping-pong balls to antiques. The 500 grouping tends to be the rarest class of freight, mainly as a result of the risk and costs that come with shipping. Low density items are expensive to ship because they occupy valuable space on the truck, without occupying much weight.
Short-term Cost Impact
The NMFC and its 18 classes don’t exist in a vacuum. The classifications have real-world effects on carriers, consumers and shippers. Freight misclassification has negative consequences that resonate all the way throughout the supply chain, leading to a poor delivery experience for the end consumer.
If a company mislabels freight, the company, the carrier, and the consumer all pay the price. The shipper can be fined up to 20% of the true freight costs for misclassification. If a carrier suspects an abuse in NMFC or Freight All Kinds (FAK classification), the shipper will be given additional fines and will face a slow-down of its supply chain.
Long-term Effects on Customer Experience
While factors such as NMFC and Operating Ratio can affect short-term cost if not managed correctly, mislabeling can cause major delays during the shipping process, affecting carriers and consumers alike. If a major delay occurs, shippers could pay the costs of customer loss and customer acquisition — 70% of consumers report that they be would unlikely to return to a retailer after a poor delivery experience.
Dealing with NMFC classification — and reclassification — also causes billing headaches for your own team of Operators. To lower costs, it’s vital to work with both your carrier to figure out if there are any larger issues with classification that you can fix, and your customer service team to see how consumers are being affected. During this process, ask your team about…
- Products or categories of products that may need to be handled differently to ensure a positive delivery experience
- Factors such as long transit times that may be causing frequent update calls from customers
- Exception rates for specific products — will specific products cause higher liability issues in transit?
Asking these questions can help to cut costs around delivery reclassifications and exceptions. Setting proactive measures around customer experience and product can also help reduce the number of reactive WISMO calls your team receives, impacting customer retention costs and customer service costs, not just logistics costs.
Ultimately, carriers and shippers are partners, and both create an impact on customer perception in the final mile. Learn how carriers’ services can create positive experiences for your customers, or download our free freight RFP template.