carrier selection and contracting

7/30/2019 Carrier Selection and Contracting

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What you need to know aboutyourself

NMFC Lanes

Origin points Destinations

Volumes Order Size Order Frequency

Contract Points What is important to your organization

Rates Performance Security


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National MotorFreightClassification 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, andtransporting requirements with which theshipper and carrier must adhere.


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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.


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NMFC Codes

All commodities are separated into one of18 different categories, or classifications,

Ranging from class 50 to class 500.

Four primary factors that determine the waya commodity is classified by the NMFC:

Density,

Value, Stowability and handling considerations and

Susceptibility to damage.


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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)


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Freight Rate

NMFC class is combined with the weight andlength of haul (from origin to destination) todetermine a base rate

Usually stated in cents per hundred pounds (orhundredweight, "cwt").

Due to various economies, such as reducedhandling, the per hundredweight rate generallydecreases as shipment weight increases.

To determine the freight charges, the weight of theshipment is multiplied by the applicable rate.


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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


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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


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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


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CarrierAssessment, Selectionand Management (CASM)

Process improvement model to assesscarriers and LSPs in meeting usersperformance requirements.

Four Stages Mobilize Analyze

Implement

Realize

Copyright: Edward J. Marien, Ph.D.


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

1.0 2.0 3.0 4.0 5.0 6.0 8.0 9.0

Identify

CorporateMission,

Vision, KRAs

& Leadership

Define

logistical/SCM

process

mission, vision,

and identify

improvement

opportunities.

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

Award the

business and

implement

operation/

pilot.

Monitor

for

perform-

ance

Mobilize Implement Realize

1.1 The

Corporate

mission/vision

sets thedirection 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.

2.1 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.

3.1 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-of-

quality process

in place.

4.1 Define

criteria for

selectingcarriers 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.

5.1 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.

6.1 Call carriers/

LSPs together

and deliver therequests.

6.2 Mail

Requests to

carriers/LSPs

unable to attend

meeting.

8.1 Have legal

review business

relationshipsand contracts.

8.2 Sign the

contract.

8.3 Celebrate

8.4 Develop

implementation

plan and project

schedule.

8.5 Roll out

plan.

9.1 Performance

charting and

reporting onservice, costs,

and asset

management are

implemented.

9.2 CASM

customer

satisfaction &

process

measures are

monitored.

9.3 Hold

quarterly

leadership teammeetings 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

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

CASMPhases.ppt7/9/01 revised

Analyze

7.0

7.1 Conduct

detailed ABM

analysis ofprospects.

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 Finalizepricing for

services.

7.6 Agree upon

Letter of intent/

agreement/

understanding

(LOI/LOA/LOU)

Analyze

requests

and

negotiate

Negotiate


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Carrier/LSP Assessment, Selection andManagement (CASM) Process

Identify

Corporate Mission

Vision

Key Result AreasK.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.

1.0


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Define Logistical/SCM

Process mission

Vision

Improvementopportunities

2.1 The logistical process

mission, vision, KRAs set

the direction for meeting

mgmt goals & KRAs.

2.2 Identify current/futurecustomer and/or supplier

requirements.

2.3 Recognize changes in

LSP base.

2.4 Conduct GAP analysis

and identify improvement

opportunities.

2.0


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Create Statement ofExpectations

(SOE)

Performancerequirements of

the logisticsprocess.

3.1 Recognize interfacing,

relationship management

processes.

3.2 Define operational process

requirements.

3.3 Define initial SOE

3.4 Select teams for analysis.

3.0


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Sample RFI Handout


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Establish criteria forselecting carriers

and LSP services

4.1 Define criteria forselecting carriers andLSPs.

4.2 Identify key financialratios and services ofalternative serviceproviders.

4.3 Pre-qualify LSPs.

4.4 Identify alt.

Commercial/ contractualrelationships.

4.5 Design initial RFI, RFP orBid.

4.0


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Identify potentialsuppliers/ 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.

5.0


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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 prospectivecarrier(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 annualreport from successful carrier(s)

Miscellaneous - hazardous materials, included/not included


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Select carriers/ LSPs &issue Requests ForProposal (RFP-RFQ-

RFI)

6.1 Call carriers/ LSPs

together and deliver the

requests.

6.2 Mail Requests to

carriers/LSPs unable toattend meeting.

6.3 Establish and

communicate deadline and

expectations.

6.4 Establish feedback loop

for asking/sharing

questions

6.0


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Analyze requestsand negotiate

7.1 Conduct analysis ofprospects proposals, anddata

7.2 Select carriers/LSPs.(Short list)

7.3 Conduct site visits, ifrequired.

7.4 Conduct reference check,if applicable.

7.5 Finalize SOE betweenparties.

7.6 Finalize pricing forservices.7.7 Agree upon Letter of

intent/ agreement/understanding(LOI/LOA/LOU)

7.0


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Selection Process

Matrix

Weighted Scale

Team Review Consensus


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Negotiation

Negotiation usually involves the followingsteps: identify underlying interests (as contrasted to

positions)

develop alternative scenarios to meetunderlying interests combine or further refine scenarios to meet as

many interests as possible select a scenario via consensus.

Working toward consensus by identifyinginterests rather than establishing positionsis a key skill


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Game Theory

Zero Sum Game

In order for me to win, you must lose.

Non-Zero Sum Game

Win-Win deal


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Negotiation Strategies

With enough volume virtually anything isnegotiable.

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 ofstrength/ knowledge


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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 areshipping 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.


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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.


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Award the businessand 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.

8.0


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Monitor forperformance

9.1 Performance charting andreporting on service, costs,and asset management areimplemented.

9.2 CASM customersatisfaction & processmeasures are monitored.

9.3 Hold quarterly leadershipteam meetings to ensurecriteria & services arebeing met.

9.4 Recognize performance ofall parties.

9.0


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Carrier Performance Tracking


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Carrier Performance Tracking


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In transportation reporting, you arelooking 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


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

1.0 2.0 3.0 4.0 5.06.0 8.0 9.0

Identify

Corporate

Mission,Vision, KRAs

& Leadership

Define

logistical/SCM

processmission, vision,

and identify

improvement

opportunities.

Define SOE -

performance

requirementsof the

logistics

process.

Establish

criteria for

selectingcarriers and

LSP services

Identify

potential

suppliers/carriers/

LSPs.

Select

carriers/

LSPs &deliver the

Requests

Award the

business and

implementoperation/

pilot.

Mobilize Implement Realize

1.1 The

Corporate

mission/vision

sets thedirection 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.

2.1 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.

3.1 Recognize

interfacing,

relationship

managementprocesses.

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-of-

quality process

in place.

4.1 Define

criteria for

selecting

carriers andLSPs.

4.2 Identify

key financial

ratios and

services of

alternative

service

providers.

4.3 Pre-quality

LSPs.

4.4 Identify alt.

Commercial/

contractualrelationships.

4.5 Design

initial

Requests for

Information,

Proposal, or

Bid.

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.

6.1 Call carriers/

LSPs together

and deliver the

requests.

6.2 Mail

Requests to

carriers/LSPs

unable to attend

meeting.

8.1 Have legal

review business

relationshipsand contracts.

8.2 Sign the

contract.

8.3 Celebrate

8.4 Develop

implementation

plan and project

schedule.

8.5 Roll out

plan.

Analyze

7.0

7.1 Conduct

detailed ABM

analysis ofprospects.

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)

Analyze

requests

andnegotiate

Feedback Loops to

Ensure Alignment

with Corporate,

SCM Goals &

Resource

Commitments

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

CASMPhases.ppt7/9/01 revised

Negotiate

9.1 Performance

charting and

reporting onservice, 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.


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TransportationManagement

BUS 305

WEEK 5

Transportation Contracting


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Good Fences make

Good Neighbors.

and

Good Contracts makeGood Partners.


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Any area that you wish to preemptfrom carriers common law provisions

Operations

Responsibilities

Measures/Metrics

Dispute resolution

Areas in Contracting


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Standard Contract Points

Rates

Origins and destinations

Commodities to be transported Freight document (whose)

Volume guarantees (if applicable)

Which business? Measuring technique


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Specification of carrier equipment

Type (if applicable)

Condition

Shipper indemnification

Not liable for Carrier negligence

Confirmation of status as independent

Contractor

Carrier liability


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Force majeure clause

Schedule for payments (i.e. terms)

Guarantee of contract confidentiality Protection of other proprietary

information


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Provision governing assignment of thecontract (rights granted cannot betransferred)

Example: 3rd

party payment services Termination clause

Specification for measure of loss

Replacement value Wholesale? Retail?

Collateral


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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


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Accessorial charges

In transportation, those charges madefor additional, supplemental, or specialservices performed in addition to the

basic transportation service.


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Accessorial ChargesTruck Example

ACCESSORIAL CHARGESFuel Price in cents per gallon Surcharge % of Rate

$ .92 to $ .989 0%$ .99 to $1.159 1%$1.16 to $1.219 2%

$1.22 to $1.279 3%$1.28 to $1.339 4%$1.34 to $1.399 5%$1.40 to $1.459 6%$1.46 to $1.519 7%

$1.52 to $1.579 8%$1.58 to $1.639 9%$1.64 to $1.699 10%

For each 6 cents fuel price increase above $1.699, a 1% additional charge willapply.

Note: The fuel surcharge will be adjusted weekly in accordance with theNational Fuel Price Average put out by the Department of Energy on

TUESDAY.


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Accessorial ChargesTruck Examples

Minimum Charge on all types of Cargo is $550.00 unless otherwisenoted.

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 - 8or 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 hourEAGLE H LOGISTICS


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Shipping Exceptions

Haz-Mat

Personal Belongings


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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' saleand 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


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Freight Terms

The FOB terms represent a number ofdifferent factors concerning how a sale ismade

they affect who is responsible for the freightcharges,

where the title to the goods passes

who has responsibility for loss and damage

claims. Normally established in contract of sale

Impacts Transportation


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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 isshipped on a collect basis.

FOB Origin, Freight Prepaid - Same as #1 only the shipperpays the freight.

FOB Origin, Freight Prepaid and Charged Back - Same as#1, but the shipper pays the carrier for the freight and theninvoices the consignee for the freight charges.

FOB Destination - The title passes at destination (consigneesdock) and the shipper is responsible for the freight charges. Thefreight 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 andthen deducts those charges from the sellers invoice for thegoods.


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INternational COmmercial TERMS

The international standard calledIncotermshas largely replaced the olderFOB designations

I t d R l t d


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Incoterms and RelatedBuyer/Seller Responsibilities

Abbreviation

Incoterms

SupplierCountry

InlandFreight

SupplierCountry

InlandInsurance

SupplierCountry

Export/Customs

Clearing

International

ShipmentLoading

InternationalFreight

International

Insurance

International

ShipmentUnloading

BuyerCountryImpor

CustomsClearance

BuyerCountryInlan

Freight

BuyerCountryInlan

Insurance

EXW Ex WorksFCA Free Carrier

FAS Free Alongside

FOB Free Onboard

CFR Cost and Freight

CPT Carrier Paid to

CIFCost, Insurance and

Freight

CIP Carriage andInsurance Paid to

DAF Delivered at Frontier

DES Delivered Ex Ship

DEQ Delivered Ex Quay Depends

DDUDelivered Duty

Unpaid

DDP Delivered Duty Paid

Supplier Responsibility Buyer Responsibility


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Critical aspects of Cargo Loss&Damage Liabilities

Shippers burden of proofand responsibilitiesare: 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


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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.

Critical aspects of CargoLoss& Damage Liabilities

carrier selection and contracting

Documents