Carrier Selection and Contracting
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Transcript of 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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Carrier/LSP Assessment, Selection andManagement (CASM) Process
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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Carrier/LSP Assessment, Selection andManagement (CASM) Process
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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Carrier/LSP Assessment, Selection andManagement (CASM) Process
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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Carrier/LSP Assessment, Selection andManagement (CASM) Process
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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Carrier/LSP Assessment, Selection andManagement (CASM) Process
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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Carrier/LSP Assessment, Selection andManagement (CASM) Process
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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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 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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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.
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Carrier/LSP Assessment, Selection andManagement (CASM) Process
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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Carrier/LSP Assessment, Selection andManagement (CASM) Process
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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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
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Standard Contract Points
Force majeure clause
Schedule for payments (i.e. terms)
Guarantee of contract confidentiality Protection of other proprietary
information
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Standard Contract Points
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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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
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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