Why You Need to check your invoices



Working out how much you are paying for your freight without the expertise is a baffling experience at best. With so many different mathematical formulas to consider, it’s easy to wonder if freight companies are just pulling numbers from thin air (or somewhere else) when they send you that quote. Understanding the way your freight costs are calculated is essential if you want to avoid being ripped off, and to give yourself the best possible chance of saving money.

As well as understanding your kilo rate, minimum charges, and basic charges, you will need to come to grips with your cube to deadweight ratio. This is critical if you want to ensure that you aren’t paying too much for your freight. Cube to deadweight ratio is a key factor in determining your freight rates and it has a big impact on your overall freight costs. We recently assisted a customer who unknowingly agreed to a 250 cubic conversion factor with a freight company for air freight when they should have been on a 167 cubic conversion factor! That in itself equates to a 33% saving just on cube without any rate adjustment.

The idea of working out cube to deadweight ratio is based on the idea that items being transported are calculated both on their weight and also on the amount of space they are expected to take up. A box of feathers may be lighter than a box of nails, but they still take up space, which needs to be accounted for. Carriers will claim upfront that they need to charge a 250 (cartons) or 333 (pallets) to be profitable. But take note, cube can be negotiated. Additionally, the majority of linehaul trucks have a mixture of heavy freight as a base and pack lighter freight on top. This maximises their vehicle capacity utilisation as well as cost effectiveness. Essentially, by charging a 250 cube for light freight they are double dipping.

Here’s how Carriers’ profit from you:

Firstly, their Charge Weight is the greater weight identified between the dead weight (physical weight) or the cubic weight. Cubic measurement is calculated on the basis of length x width x height. Let’s say that the cube the cubic figure equals .0885. A Carrier would then multiply this by the cubic conversion factor on your rate-card. Red alert here, Note the following examples.

Example one:

Physical weight is 2 kilograms.
Cubic measurement is
.0885 x 250 = 22.125 (23kgs)

Example one:

Physical weight is 2 kilograms.
Cubic measurement is
.0885 x 167 = 14.775 (15kgs)

To counteract this strategy utilised by the Carrier, your company needs to be acutely aware of its own Cube to Deadweight Ratio (cube versus physical weight ratio) of your entire product range. To do this accurately, you need to obtain Excel data from your carriers and combine it for an annual period.

Then, you sum up the cube and deadweight of all the consignments. Once you have done this, divide the deadweight by the cube.
You could end up with a figure between 80 to 140 which means your product type overall is light. Alternatively, you may get a figure between 141 to 200 which means your product type is medium density. Beyond 200, your product type is starting to get heavy. Let’s say your cube to dead weight ratio is 141. Why on earth would you want the Carrier to charge you a 250 cube in this scenario?
Transport companies like to use their own standard conversion factors, which can be 250 or 333 when they are determining what weight to charge you for. Unfortunately, if the cube to deadweight ratio for your goods is less than the standard conversion factor you could end up being charged well over the amount you should be as the example above demonstrates.

So, many customers ask me if we can negotiate a lower cubic conversion rate? The answer is absolutely yes! It’s always a good idea to try to negotiate a lower cubic conversion rate with your freight provider but be aware that freight companies don’t like to reduce their cubic conversion rates and they are likely to try and increase the rates to compensate. You will probably need to find a balance between the cubic conversion rate you want and the basic charge and per kilo rates you pay.For in depth advice and help regarding your freight costs, contact Freight Cost Solutions™ today. Call 1800 428 348