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Does a FAK Strategy Help or Hurt You?

Freight All Kinds Strategy

A Freight All Kinds (FAK) agreement you’ve had in place for some time enables multiple items to be shipped and billed under the same freight class, thereby streamlining the transportation process and saving you money.

Or does it?

FAK agreements do generally deliver these benefits, but some decline in value to a point where they may be actually adding rather than saving cost.

There are a number of possible reasons for this fall-off in performance.

  • The agreement is out of date. How long has it been since you reviewed your FAK?  If the answer is a long time, then there is a danger that the average weighted class has changed. Perhaps it has not kept pace with regulatory changes, or the product mix has changed over the years in line with the evolving business.
  • A lack of information. You have no system for capturing and/or tracking  actual class information. Key details such as the average density of the items being shipped—one of the four characteristics that determine class—are not known.  Or, there may be a system for capturing the FAK class, but the shipper does not know what the actual class is.
  • No updates from carriers. The service provider may or may not adjust the agreement as needed if the current terms favor them.

Issues like these can undermine the advantages of an FAK program, and increase your freight bill unnecessarily. Moreover, it’s almost impossible to benchmark less-than-truckload pricing accurately when the FAK-related costs are largely unknown.

The lack of important information such as cargo density complicates the bidding process and makes it more difficult to properly price the product being moved. That can put you at a disadvantage when bidding out freight to non-incumbent carriers that are not familiar with the business.

The “junk-in-junk-out” principle also applies. Transportation management systems usually capture FAK class information from carriers. If these inputs are inaccurate, then the system’s analytics will be off base as well.

Another issue is liability coverage. Carriers will commonly lower their liability to match the FAK class; if the class is low, then the coverage may be significantly lower than what the carrier provides as part of their standard service offering. Again, you might be unaware of this disparity until it is time to make a claim for damage, theft, or some other occurrence.

The longer you fail to address the problem of a flawed FAK class, the worse it is likely to get.

Regulatory regimes are becoming more stringent, particularly for hazardous items and food products. Supply chains are increasingly complex as the types of products being shipped are changing. Also, there is a general move in the freight community toward the use of density as a way to rate shipments. If you do not know these values, then chances are that you are behind the curve.

Crucially, failure to manage FAK agreements effectively means that you have less control over your transportation procurement strategy—a potentially serious drawback in today’s intensely competitive marketplace.

The solution is relatively straightforward: establish a system for capturing, tracking, and storing actual class and FAK information. This can be done in-house, or in collaboration with a service provider.

The important thing is to take action before your FAK agreement becomes a hidden liability.

Comments

Mary Bittner

Greg - Well stated and great article. Hope many of our shippers read this one and now understand the importance of accurate classification!

2.26.13

Reply

Jason Gookins

Great blog Greg. I asked my team to read this as well. These points will aid not just as a sales tool, but as we gain trust as we counsil our customers and potential customers.

3.4.13

Reply

Megan Castillo

Greg,
Great article and a very popular topic with customers!

This supports one of the many value-adds that we bring to the table. Whether we are challenging our customers to provide us with detailed commodity information during implementation process or collecting this information throughout the course of business, we are able to provide our clients with actionable business intelligence that can support changes not only within pricing models, but prepare them for industry changes.

3.5.13

Reply

michelle

I have a carrier that said when the cubic capicty is used the fak doesn't apply?

Is that true?

4.10.17

Reply

    Greg West

    Hi Michelle. Thank you for your question. That is correct – cubic capacity is typically applied when the cube exceeds certain thresholds that the carriers set (each carrier is a bit different). Cubic capacity is its own rule, and usually voids class based rating (or FAK). It is rated based on the space being taken up. It is best to consult your carrier accessorial rules, but in our experience, cubic capacity typically voids FAK rating.

    4.10.17

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