First a History Lesson
Within the LTL industry, the specific class assigned to a commodity is most often a topic open to much scrutiny and debate. The NMFTA is responsible for identifying and classifying every commodity with one of 18 values ranging from 50-500. They take into account multiple factors that determine the overall move-ability of the freight. As the class increases, the cost per hundred weight also increases to accommodate the more difficult freight. As shippers began to find themselves moving a variety of commodities on a single pallet, they requested an easier solution to group multiple items to save both time and reduce re-classifications. The simple idea was to choose one class that averaged all items shipped so that the price was fair for both shipper and carrier. This was the beginning of the FAK or Freight All Kinds.
Definition: FAK (Freight all Kinds) is a pricing mechanism that groups multiple classes of freight into a single class
Reason it is useful: It allows for much easier rating and reduces re-classification and billing errors for companies that ship a wide range of products.
A Shot to the Foot
The FAK proved to be very effective in its original design. However some shippers figured out how to exploit the FAK to move their poorly operating freight at the same cost as very profitable freight. Carriers profits and operating ratios (O/R’s) took significant hits since they were now exposed to a volatile mix of products. Carriers also noticed that a new phenomenon was taking place in which they were getting mostly freight on the higher end of the FAK spectrum and the good profitable freight suddenly disappeared. Ask any carrier today what they think of an FAK and we will almost guarantee that their response will be very negative.
Walking the Tightrope
Used correctly and for the intended purpose, FAKs are a great tool for shippers and can help you reduce your hard costs as well as soft such as the time it takes to sort through billing errors. Since carriers are also very aware of FAK abuse, you can bet on the fact that if you have an FAK, your discount has been adjusted to account for the unpredictability. So here is a checklist to see if you would qualify as a good customer for an FAK:
Shipping Multiple Products
This is the reason they were created. For example, you ship 2 different products on the same pallet to your customers. The product mix is equally class 50 and class 85. Negotiating an FAK 60 for everything would be acceptable in this situation. You would pay higher for class 50, and get a discounted rate (85->60). This would be a fair tradeoff and welcomed by most carriers. This is a simplified example, but imagine if you are shipping thousands of different items. Looking up freight class each time and praying that you get it right gets increasingly difficult. Remembering 2 classes, perhaps one for the heavier items and one for the lighter, presents an enormous time savings as well as reduction in billing errors.
Grouping Similar Densities
Most people would agree that the NMFTA class system is far from perfect and requires a knowledge of dark arts to interpret. It is a guideline that requires interpretation, and for that alone you may have had to partner with a third party just to help you classify your freight. Did you know that you can ethically justify and be rewarded for pushing the limits of the NMFTA guidelines? For example, if you ship an item that is classified as a class 70, but you manage to package it extremely well and fit multiple items on a pallet to improve the density, a carrier will consider an FAK to the new density class to be acceptable. If the new pallet looks and feels like a lower class product, it will operate better for a carrier and your pricing will reflect that very favorably. As a caution, you can go the other way as well. If you throw a used transmission on a broken pallet, be ready to accept your fate as you take multiple increases.
Handling, Stowability, and Liability
Just like with the density example, if you notice that your freight is classed high, do a little research to find out why. Is it hard or awkward to handle? Is it susceptible to theft or damage? Is it making a carriers job to move other freight more difficult? If you feel the answer is no, then an FAK may be warranted in these circumstances. To reiterate, the FAK can be a means to move your freight at a lower class if it operates like a lower class. If you answered yes to the above questions, try to fix the problems. Can you nest items or go get 3rd party insurance? Can you shrink wrap pallets in black so that susceptibility to theft decreases. If you have done all that you can and still have high classed freight, your best option is to stay with actual class. Your acceptance goes a long way in the carrier’s eyes and you can focus on better ways of lowering your costs. Weight break pricing, regional pricing and minimum charges are all much better ways to cut costs than an FAK in those instances.
Is an FAK right for you?
An FAK is a good solution for your company if:
1. You ship many different items
2. You ship a wide variety of items
3. Your freight looks and feels like a lower class
An FAK is not a good solution for your company if:
1. You ship a few items
2. Your freight is justifiably a high class