What you need to know about yourself

NMFC Lanes
Origin points Destinations

Volumes
Order Size Order Frequency

Contract Points
What is important to your organization
Rates Performance Security

National Motor Freight Classification Guide

Roots in regulation NMFC Guide is divided into various sections:
A list of participating carriers. Indexes to assist in locating specific commodities. An index providing rules governing the use of the NMFC. Rules relating to the movement of commodities, including specific shipping, packaging, and transporting requirements with which the shipper and carrier must adhere.

NMFC Guide
Examples of the Uniform Domestic Bill of Lading, its terms and conditions. Description and classifications for every

commodity.
Specifications for required packaging. Rules for overcharge, loss and damage claims.

NMFC Codes
All commodities are separated into one of 18 different categories, or classifications, Ranging from class 50 to class 500. Four primary factors that determine the way a commodity is classified by the NMFC:
Density, Value, Stowability and handling considerations and Susceptibility to damage.

NMFC Codes
NMFC items are further divided into subs, based on the density of the commodity Example
Item 156600, Plastic Articles, NOI Ping pong and bowling balls: same classification?
A trailer could be filled with only a few hundred pounds of ping pong balls (a class 500 item), The same trailer space could be occupied by over 20,000 pounds of bowling balls (class 70)

Freight Rate
NMFC class is combined with the weight and length of haul (from origin to destination) to determine a base rate Usually stated in cents per hundred pounds (or hundredweight, "cwt"). Due to various economies, such as reduced handling, the per hundredweight rate generally decreases as shipment weight increases. To determine the freight charges, the weight of the shipment is multiplied by the applicable rate.

Example
Rates shown in cents per hundredweight.
L5C 5C 1M 2M 5M 10M 20M
$0.6098 $0.5395 $0.4930 $0.4362 $0.3277 $0.2908 $0.2704

SHIPPING 3,000 POUNDS To calculate the freight charges:

Determine where the actual shipment weight would fall, 3000 lbs. would fall between the 2M (2000 lbs.) and the 5M (5000 lbs.) weight breaks. Multiply the actual weight by the 2M rate: 3000 lbs. @ 4362 cwt = $1308.60 Then, multiply the next weight break by the 5M rate: 5000 lbs. @ 3277 cwt = $1638.50

Example
Rates shown in cents per hundredweight.
L5C 5C 1M 2M 5M 10M 20M
$0.6098 $0.5395 $0.4930 $0.4362 $0.3277 $0.2908 $0.2704

SHIPPING 4,200 POUNDS To calculate the freight charges:

Determine where the actual shipment weight would fall 4200 lbs. would fall between the 2M (2000 lbs.) and the 5M (5000 lbs.) weight breaks. Multiply the actual weight by the 2M rate: 4200 lbs. @ 4362 cwt = $1832.04 Then, multiply the next weight break by the 5M rate: 5000 lbs. @ 3277 cwt = $1638.50

Lanes
Origin/Destination combinations
By state By zone By 3-digit ZIP

Volume/Activity
Order Size Frequency

Elements of Pricing Program

A rating system that is easy to:
Understand Apply Compare

Price stability for the shipper (for a given span of time) Volume stability for the carrier (for a given span of time) Simplified freight bill payment
Ability to automate

Carrier Assessment, Selection and Management (CASM)

Process improvement model to assess carriers and LSPs in meeting users performance requirements. Four Stages
Mobilize Analyze Implement Realize

Copyright: Edward J. Marien, Ph.D.

Carrier/LSP Assessment, Selection and Management (CASM) Process

Mobilize
Identify Corporate Mission, Vision, KRAs & Leadership Define logistical/SCM process mission, vision, and identify improvement opportunities.

Analyze
Define SOE performance requirements of the logistics process. Establish criteria for selecting carriers and LSP services Identify potential suppliers/ carriers/ LSPs. Select carriers/ LSPs & deliver the Requests Analyze requests and negotiate

Implement
Award the business and implement operation/ pilot.

Realize
Monitor for performance

1.0
1.1 The Corporate mission/vision sets the direction for the total mission. 1.2 The logistics process must contribute to corporate mission, vision, and Key Result Areas (KRAs). 1.3 Develop/ implement a core, change leadership program & team.

2.0
2.1 The logistical process mission, vision, KRAs set the direction for meeting mgmt goals & KRAs. 2.2 Identify current/future customer and/or supplier requirements. 2.3 Recognize changes in LSP base. 2.4 Conduct GAP analysis and identify improvement opportunities.

3.0
3.1 Recognize interfacing, relationship management processes. 3.2 Define operational process requirements. 3.3 Define initial statement of expectations (SOE). 3.4 Select teams for analysis. 3.5 Assure a CASM value and cost-ofquality process in place.

4.0
4.1 Define criteria for selecting carriers and LSPs. 4.2 Identify key financial ratios and services of alternative service providers. 4.3 Pre-quality LSPs. 4.4 Identify alt. Commercial/ contractual relationships. 4.5 Design initial Requests for Information, Proposal, or Bid.

5.0
5.1 Source potential suppliers, carriers, LSPs. 5.2 Bring a few key carriers and LSPs together and review Request. 5.3 Finalize Request for Proposal, Bid document.

6.0
6.1 Call carriers/ LSPs together and deliver the requests. 6.2 Mail Requests to carriers/LSPs unable to attend meeting.

7.0
7.1 Conduct detailed ABM analysis of prospects. 7.2 Team analyzes proposals, data and selects carriers/LSPs. 7.3 Conduct site visits, if required. 7.4 Finalize SOE between parties. 7.5 Finalize pricing for services. 7.6 Agree upon Letter of intent/ agreement/ understanding (LOI/LOA/LOU)

8.0
8.1 Have legal review business relationships and contracts. 8.2 Sign the contract. 8.3 Celebrate 8.4 Develop implementation plan and project schedule. 8.5 Roll out plan.

9.0
9.1 Performance charting and reporting on service, costs, and asset management are implemented. 9.2 CASM customer satisfaction & process measures are monitored. 9.3 Hold quarterly leadership team meetings to ensure criteria & services are being met. 9.4 Recognize performance of all parties.

Feedback Loops to Ensure Alignment with Corporate, SCM Goals & Resource Commitments

Negotiate

CASMPhases.ppt 7/9/01 revised

Communications & Feedback Loops for Reporting Process Improvement Results -- Copyright: Edward J. Marien, Ph.D.

Carrier/LSP Assessment, Selection and Management (CASM) Process

1.0 Identify Corporate Mission Vision Key Result Areas K.R.A.s Leadership

1.1 The Corporate mission/vision sets the direction for the total process. 1.2 The logistics process must contribute to corporate mission, vision, and K.R.A.s 1.3 Identify/Develop/ implement a core, change leadership program & team.

Carrier/LSP Assessment, Selection and Management (CASM) Process

2.0 Define Logistical/ SCM Process mission Vision Improvement opportunities

2.1 The logistical process mission, vision, KRAs set the direction for meeting mgmt goals & KRAs. 2.2 Identify current/future customer and/or supplier requirements. 2.3 Recognize changes in LSP base. 2.4 Conduct GAP analysis and identify improvement opportunities.

Carrier/LSP Assessment, Selection and Management (CASM) Process

3.0 Create Statement of Expectations (SOE)

3.1 Recognize interfacing, relationship management processes. 3.2 Define operational process requirements. 3.3 Define initial SOE

Performance requirements of the logistics process.

3.4 Select teams for analysis.

 Sample RFI Handout

Carrier/LSP Assessment, Selection and Management (CASM) Process

4.0 Establish criteria for selecting carriers and LSP services

4.1 Define criteria for selecting carriers and LSPs. 4.2 Identify key financial ratios and services of alternative service providers. 4.3 Pre-qualify LSPs. 4.4 Identify alt. Commercial/ contractual relationships. 4.5 Design initial RFI, RFP or Bid.

Carrier/LSP Assessment, Selection and Management (CASM) Process

5.0 Identify potential suppliers/ carriers/ LSPs.

5.1 Source potential suppliers,

carriers, LSPs.
5.2 Bring a few key carriers and LSPs together and review Request. 5.3 Finalize Request for Proposal, Bid document.

RFI / RFQ / RFP

A typical request for quotation consists of the following:
Rationale for the request for quotation and carrier selection
Revenue or tonnage history, prepaid and collect, for a given period of time by traffic lane or region and the prospective carrier(s) share during that period Projected revenue or tonnage available to successful carrier(s) by traffic lane or region for the term requested Request for carrier viability, insurance, safety rating, or annual

report from successful carrier(s)

Miscellaneous - hazardous materials, included/not included

Carrier/LSP Assessment, Selection and Management (CASM) Process

6.0
Select carriers/ LSPs & issue Requests For Proposal (RFP-RFQRFI)

6.1 Call carriers/ LSPs together and deliver the requests. 6.2 Mail Requests to carriers/LSPs unable to attend meeting. 6.3 Establish and communicate deadline and expectations. 6.4 Establish feedback loop for asking/sharing questions

Carrier/LSP Assessment, Selection and Management (CASM) Process

7.0 Analyze requests and negotiate

7.1 Conduct analysis of prospects proposals, and data 7.2 Select carriers/LSPs. (Short list) 7.3 Conduct site visits, if required. 7.4 Conduct reference check, if applicable. 7.5 Finalize SOE between parties. 7.6 Finalize pricing for services. 7.7 Agree upon Letter of intent/ agreement/ understanding (LOI/LOA/LOU)

Selection Process
Matrix Weighted Scale Team Review Consensus

Negotiation
Negotiation usually involves the following steps:
identify underlying interests (as contrasted to positions) develop alternative scenarios to meet underlying interests combine or further refine scenarios to meet as many interests as possible select a scenario via consensus.

Working toward consensus by identifying interests rather than establishing positions is a key skill

Game Theory
Zero Sum Game
In order for me to win, you must lose.

Non-Zero Sum Game

Win-Win deal

Negotiation Strategies
With enough volume virtually anything is negotiable. The flip-side may be that a little volume may result in very little flexibility The only thing that you absolutely cannot negotiate is the thing you dont mention. Always negotiate from a position of strength/ knowledge

Negotiation Strategies
Other things to Know about your business.
How quickly you pay your bills What is the time your freight is available for pick-up Detailed description of the commodities you are shipping and their respective class ratings The percentage of prepaid vs. collect freight
Prepaid freight is that paid by the shipper. Collect freight is that paid by the consignee. Carrier discounts may apply only to the payer of the freight bill.

Negotiation Strategies
Separate what you want from what you Need
i.e. EDI, Security

Be VERY CLEAR about expectations of what is included and what is accessorial.

Good contracts make good partners

Unbundle costs for Apples to Apples comparison. There are many other factors to consider
The more information you can provide - The more accurately a carrier can assess your account.

Carrier/LSP Assessment, Selection and Management (CASM) Process

8.0 Award the business and implement operation/ pilot.

8.1 Have legal review

business relationships and

contracts. 8.2 Sign the contract. 8.3 Develop implementation plan and project schedule. 8.4 Roll out plan.

Carrier/LSP Assessment, Selection and Management (CASM) Process

9.0 Monitor for performance

9.1 Performance charting and reporting on service, costs, and asset management are implemented. 9.2 CASM customer satisfaction & process measures are monitored. 9.3 Hold quarterly leadership team meetings to ensure criteria & services are being met. 9.4 Recognize performance of all parties.

Carrier Performance Tracking

Carrier Performance Tracking

In transportation reporting, you are looking for exceptions and trends in:
Flow volumes by:
Business units Geographic location Customers Suppliers

Service times OS&D losses and claims Budget variances Projected costs/unit

Carrier/LSP Assessment, Selection and Management (CASM) Process

Mobilize
Identify Corporate Mission, Vision, KRAs & Leadership Define logistical/SCM process mission, vision, and identify improvement opportunities.

Analyze
Define SOE performance requirements of the logistics process. Establish criteria for selecting carriers and LSP services Identify potential suppliers/ carriers/ LSPs. Select carriers/ LSPs & deliver the Requests Analyze requests and negotiate

Implement
Award the business and implement operation/ pilot.

Realize

1.0
1.1 The Corporate mission/vision sets the direction for the total mission. 1.2 The logistics process must contribute to corporate mission, vision, and Key Result Areas (KRAs). 1.3 Develop/ implement a core, change leadership program & team.

2.0
2.1 The logistical process mission, vision, KRAs set the direction for meeting mgmt goals & KRAs. 2.2 Identify current/future customer and/or supplier requirements. 2.3 Recognize changes in LSP base. 2.4 Conduct GAP analysis and identify improvement opportunities.

3.0
3.1 Recognize interfacing, relationship management processes. 3.2 Define operational process requirements. 3.3 Define initial statement of expectations (SOE). 3.4 Select teams for analysis. 3.5 Assure a CASM value and cost-ofquality process in place.

4.0
4.1 Define criteria for selecting carriers and LSPs. 4.2 Identify key financial ratios and services of alternative service providers. 4.3 Pre-quality LSPs. 4.4 Identify alt. Commercial/ contractual relationships. 4.5 Design initial Requests for Information, Proposal, or Bid.

5.0
5.1 Source potential suppliers, carriers, LSPs. 5.2 Bring a few key carriers and LSPs together and review Request. 5.3 Finalize Request for Proposal, Bid document.

6.0
6.1 Call carriers/ LSPs together and deliver the requests. 6.2 Mail Requests to carriers/LSPs unable to attend meeting.

7.0
7.1 Conduct detailed ABM analysis of prospects. 7.2 Team analyzes proposals, data and selects carriers/LSPs. 7.3 Conduct site visits, if required. 7.4 Finalize SOE between parties. 7.5 Finalize pricing for services. 7.6 Agree upon Letter of intent/ agreement/ understanding (LOI/LOA/LOU)

8.0
8.1 Have legal review business relationships and contracts. 8.2 Sign the contract. 8.3 Celebrate 8.4 Develop implementation plan and project schedule. 8.5 Roll out plan.

9.0
9.1 Performance charting and reporting on service, costs, and asset management are implemented. 9.2 CASM customer satisfaction & process measures are monitored. 9.3 Hold quarterly leadership team meetings to ensure criteria & services are being met. 9.4 Recognize performance of all parties.

Feedback Loops to Ensure Alignment with Corporate, SCM Goals & Resource Commitments

Negotiate

CASMPhases.ppt 7/9/01 revised

Communications & Feedback Loops for Reporting Process Improvement Results -- Copyright: Edward J. Marien, Ph.D.

Transportation Management BUS 305

WEEK 5 Transportation Contracting

Good Fences make Good Neighbors.

and
Good Contracts make Good Partners.

Areas in Contracting
Any area that you wish to preempt from carriers common law provisions Operations Responsibilities Measures/Metrics Dispute resolution

Standard Contract Points

Rates Origins and destinations Commodities to be transported

Freight document (whose)

Volume guarantees (if applicable)
Which business? Measuring technique

Standard Contract Points

Specification of carrier equipment
Type
(if applicable)

Condition

Shipper indemnification
Not liable for Carrier negligence

Confirmation of status as independent Contractor Carrier liability

Standard Contract Points

Force majeure clause Schedule for payments (i.e. terms) Guarantee of contract confidentiality
Protection of other proprietary information

Standard Contract Points

Provision governing assignment of the contract (rights granted cannot be
transferred) Example: 3rd party payment services

Termination clause Specification for measure of loss

Replacement value
Wholesale? Retail?

Collateral

Standard Contract Points

Provision for modifying contract

Statement of jurisdiction (which states laws will govern the contract)

Severability provision
If a clause is invalid all others remain intact

Renewal Provision
Evergreen

Accessorial charges
In transportation, those charges made for additional, supplemental, or special services performed in addition to the basic transportation service.

Accessorial Charges Truck Example

ACCESSORIAL CHARGES Fuel Price in cents per gallon $ .92 to $ .989 $ .99 to $1.159 $1.16 to $1.219 $1.22 to $1.279 $1.28 to $1.339 $1.34 to $1.399 $1.40 to $1.459 $1.46 to $1.519 $1.52 to $1.579 $1.58 to $1.639 $1.64 to $1.699 Surcharge % of Rate 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

For each 6 cents fuel price increase above $1.699, a 1% additional charge will apply. Note: The fuel surcharge will be adjusted weekly in accordance with the National Fuel Price Average put out by the Department of Energy on TUESDAY.

Accessorial Charges Truck Examples

Minimum Charge on all types of Cargo is $550.00 unless otherwise noted. FLATBED SPECIAL CHARGES:
Standard Tarp = $55.00 - Lumber Tarp = $75.00

SPECIAL REEFER CHARGES:

Bulkhead Loads (divided to maintain 2 temps. in trailer) 5 cents per mile extra over standard reefer rates.

THESE CHARGES APPLY TO ALL TYPES OF EQUIPMENT: Stop-Off/Extra Pickup Charge: $50.00 each stop up to 4 stops -Stops 5-7 = $80.00 each - 8 or more Stops = $120.00 each Truck ordered but not used: $250.00 Detention Charges: $75.00 per Hour Minimum Chargeable 2 Hours 2 hours free loading or unloading, except with appointments, then it is 1 hour
EAGLE H LOGISTICS

Shipping Exceptions
Haz-Mat Personal Belongings

Freight Terms
In routine transactions, drafting specific contract terms [delivery and risk] would delay the making and consummation of the contract. Detailed terms may be included in the parties' sale and purchase forms, but the terms in the two forms often fail to coincide and generate problems The use of standardized freights terms (terms of sale) can speed agreement and avoid divergent contract provisions

Freight Terms
The FOB terms represent a number of different factors concerning how a sale is made
they affect who is responsible for the freight charges, where the title to the goods passes who has responsibility for loss and damage claims.

Normally established in contract of sale Impacts Transportation

Freight Terms
There are six basic FOB designations..
FOB Origin - The title passes at origin (shippers dock) and the consignee is responsible for the freight charges. The freight is shipped on a collect basis. FOB Origin, Freight Prepaid - Same as #1 only the shipper pays the freight. FOB Origin, Freight Prepaid and Charged Back - Same as #1, but the shipper pays the carrier for the freight and then invoices the consignee for the freight charges. FOB Destination - The title passes at destination (consignees dock) and the shipper is responsible for the freight charges. The freight is shipped on a prepaid basis. FOB Destination, Freight Collect - Same as #4 only the consignee pays the freight. FOB Destination, Freight Collect and Allowed - Same as #4, but the consignee pays the carrier for the freight charges and then deducts those charges from the sellers invoice for the goods.

INternational COmmercial TERMS

The international standard called Incoterms has largely replaced the older FOB designations

Incoterms and Related Buyer/Seller Responsibilities

Buyer Country Inland Freight Buyer Country Import Customs Clearance Buyer Country Inland Insurance International Shipment Unloading International Freight International Shipment Loading Supplier Country Inland Insurance Supplier Country Inland Freight Supplier Country Export/Customs Clearing Abbreviation International Insurance Incoterms

EXW FCA FAS FOB CFR CPT CIF CIP DAF DES DEQ DDU DDP

Ex Works Free Carrier Free Alongside Free Onboard Cost and Freight Carrier Paid to Cost, Insurance and Freight Carriage and Insurance Paid to Delivered at Frontier Delivered Ex Ship Delivered Ex Quay Delivered Duty Unpaid Delivered Duty Paid Supplier Responsibility

Depends

Buyer Responsibility

Critical aspects of Cargo Loss& Damage Liabilities

Shippers burden of proof and responsibilities are:
Shipped clean and right count Arrived Over, Short, and Damaged (OS&D)? Amount of Claimowner to be made whole Filed within stated time limits Covers amounts beyond carriers stated liabilities

Critical aspects of Cargo Loss& Damage Liabilities

Carriers responsibilities and liabilities:
Covers OS&D for areas beyond carriers 5 exceptions:
Acts of God Public Authority Public Enemy Shipper Negligence Inherent Vice

Plus within carriers stated coverages Check carriers tariffs.