Figuring out how to manage less-than-truckload (LTL) shipping can be complicated. Will a shipper avoid collaborative relationships, and if so, how would the shipper gain any savings from using LTL shipments when there is not enough product to justify a full truckload (FT)? These questions reflect why some LTL providers are discussing LTL freight shipping accounting options more openly. In some cases, the costs are being passed along to customers as they occur through prepaid charges, and in others, customers are being billed in arrears for the cost of using LTL shipping opportunities that do not involve a specific shipper (add-in shipping), explains Parcel Industry magazine.
Each scenario behaves differently in inbound and outbound shipments, and the potential legal ramifications of not being honest in disclosing or obtaining consent to these charges can involve financial and criminal penalties. As a result, shippers need to understand the two shipping accounting options for LTL freight shipping and how a 3PL can alleviate concerns and reduce risk.
What Are the Types of LTL Freight Shipping Accounting Options?
Prepaid LTL Shipping
Prepaid LTL shipping for inbound purposes is used when a shipper receives products from multiple manufacturers or distribution centers. In addition, inbound LTL shipping may be used to congregate returned merchandise from multiple locations to a single location. However, the shipper may not have a truck available to pick up the shipments, and outsourcing to other carriers to combine small-package shipping into larger LTL shipments for return to the facility.
As the products are received, the cost of shipping is prepaid by the shipper receiving the items. Essentially, the shipper views the continued relationship of working with the end-user as of greater value than transferring the cost to the end-user, which may be a manufacturer or distribution center.
In outbound LTL shipping, freight consolidation can result in a shipper using multiple smaller carriers to get pallets of different deliveries to smaller facilities, who can process the LTL shipment further. In addition, outbound LTL may be used to send whole palletized shipments to retailers or other businesses. The key to understanding this aspect of shipping accounting for LTL shipping involves consideration of the existing contracts with recipients and since LTL shipping has already been paid for by the shipper, the cost of LTL outbound shipping is considered to be “prepaid.”
Add-In LTL Shipping
Unlike prepaid shipping accounting options, add-in LTL shipping is literally “added in” to the overall cost of shipping for a given shipment. Yet, add-in LTL shipping can be either compensated as part of good business or actually billed. However, some addition implications arise for each aspect of add-in LTL shipping.
Inbound, add-shipments are used to transfer costs of shipping to a facility back to the originating shipper or organization. These costs may include loading, unloading, repackaging and transit costs. However, inbound shipping add-ins can be billed to the originating shipper, but any potential discounts must be subsequently transferred back to the end-user if an existing contract does not exist. In other words, not clearly defining how inbound shipping costs are handled can result in legal punishments by federal, state or local authorities.
On the outbound side of LTL shipping add-ins, the cost of using LTL shipping is less concerning. These costs are usually identified before they occur, and as a result, shippers can automatically acknowledge the rate of shipping. However, the same considerations for the use of contracts and agreed upon terms applies to add-in shipping rates for outbound shipments as well.
Administrative costs in obtaining lower outbound shipping rates can be legally passed on to recipients, but full visibility is required to ensure any additional discounts are delivered appropriately and according to contractual obligations when assessment of discounts is given after the completion of a given time period.
For example, a shipper may receive discounts if enough LTL shipments are sent within four months, but the discount may not be assessed until the completion of the period. If the shipper does add-in the charges for
3PLs Eliminate Confusion in Accounting Options.
If you feel confused, you’re probably not alone. There are many factors that go into deciding between prepaid versus add-in LTL shipping. One carrier may charge more for LTL shipping for distances between 200 and 300 miles. Yet, the same carrier may offer a discount if 10 shipments take place in a given time period. However, the carrier may add-in charges if there is an insurance claim on the 10th shipment.
Although this sounds and is, in all honesty, confusing, the answer to figuring out the problem rests in having as much information as possible before selecting a LTL shipping provider. Some would argue that all 3PLs operate on an add-in LTL basis, but a truly great 3PL focuses on finding the best cost savings for customers through the respective provider’s TMS.
As a result of using a TMS, such as the Cerasis Rater, individual users can review LTL freight shipping and accounting options before selecting a carrier to work with. Furthermore, the auditing capabilities within the software ensure all billing practices adhere to agreed rates and standards, explains John G. Braceland of WhatTheyThink, which dramatically reduces the risk of a shipper engaging in illegitimate billing of LTL costs after the fact. Essentially, the 3PL manages the billing, promoting a more collaborative and friendly environment for shippers to connect with each other and other carriers.
Rather than balancing dozens, if not hundreds, of carrier rates, forms for LTL shipping and billing options, a TMS through a 3PL is the only solution to the effective management of LTL shipping without the headache. While you need to know the differences between prepaid and add-in shipping for LTL, you actually only need to log in to your customer portal within the TMS to see what options are best-suited for your shipping needs.