Freight Charges: The True “Battle Royale”

Dianna Whitby | Deer Park Consulting, LLC

HAVE YOU EVER submitted a claim to a carrier’s insurance company only to have the insurance company ask you if you paid the carrier’s freight charge? Why would you pay a freight charge if the carrier failed to deliver? Your position is that the shipper is due the amount of his invoice. This is when things get really sticky, and if your company has paid the full invoice price to the shipper, you could be looking at a shortfall. This particular shortfall isn’t one you can charge back to the carrier.

Let’s start with your review of the claim received from your shipper. LOOK AT THE INVOICE! Is freight a separate line item on the invoice? If it is, then you, the carrier, and their insurance company are liable for the invoice cost less the noted freight. That seems pretty straightforward, so what’s the big deal? 

The BIG DEAL is when the shipper invoice does not show freight charges as a separate line item. Not showing this means that the freight charges are part of the cost of goods sold. Unless your shipper agrees to pay your freight bill AND you pay the carrier, this “hidden” charge needs to be determined and removed prior to any settlement or sending the claim to the carrier’s insurance company.

Here are some of the comments you may receive from your shipper when you ask for the freight charges to be “taken out” of the invoice.

1.  We don’t charge our customers for freight. 

2.  Really? Do you have any idea how irritated I get every time I hear a jingle that goes “And the shipping is free!” Or when a company tells me that they don’t charge freight if I spend more than $25. The last time I looked, there weren’t any carriers working for free. If I could, I would cross-stitch a banner for every member that says “THERE IS NO SUCH THING AS FREE SHIPPPING!” You can bet the online retailer invoice has freight included in the “Cost of Goods Sold,” or that they have marked up the goods enough to cover the freight charges.

3.  We are entitled to our invoiced cost. No, you are entitled to the ‘actual measure of damage’ according to Carmack. If a shipper’s invoice is $15,000 and includes $2,500 in unpaid freight, then his ‘actual measure of damage’ is $12,500. If you pay this in full, you just gave your shipper a $2,500 bonus. Does your CFO want you to cut a check for $2,500 more than you actually owe? Of course not, and the insurance adjuster would agree with your CFO!

4.  If you don’t pay the invoice as presented, we will stop using you. Goodbye! Again, why should your company eat $2,500?

OK, so how does one resolve this before it gets to the goodbye stage? 

A lot of shippers don’t know how to file a claim, so when you notify them about the non-delivery tell them that in order to file a claim they need to invoice either your company or the carrier. They must submit a copy of the original invoice to support the amount claimed (separate document!). The invoice to you or the carrier should not be the same amount! The freight charges must be removed. To be really proactive, tell them precisely what you were charging in freight. Tell them that your company is canceling the freight charge.

Ask the shipper for the FOB Origin price. This is the price the shipper charges his customer who is arranging their own freight. It may help defuse the situation.

This truly is an argument that no one wants, especially if your shipper contacts your sales team and throws a tantrum worthy of a 2-year-old that needs a nap! Notify your sales team that the shipper is being unreasonable and explain to them that the freight charges cannot be claimed against the carrier.

Here’s a quick, easy example. I’m a pie baker (Thanksgiving is the pie holiday, right?). You have placed an order for 10 pies and want me to ship them. I see that UPS will charge me $20 to ship the pies, so I invoice you $12 per pie or $120. Your Aunt Sally decides she wants to get 10 pies as well, but since she is going to be driving past my pie shop, she is going to pick them up, herself. Since I’m not paying UPS $20 to ship to Sally, I can “give” her a discount for personal pick-up and only charge her $10 per pie or $100. Did I lose any money? Nope! In both instances, I got $10 per pie.

Should you get bogged down in this freight charge argument, know that you are not alone. It is something that every claims person has had to overcome. Stick to your principles, so that your company doesn’t get an unpleasant surprise when the carrier or their insurance company settles the claim. Your CFO will love you!               

Dianna Whitby is Principal at Deer Park Consulting, LLC. She may be reached at [email protected]