WTFreight: How We Handle Shipping Costs

When you’re shipping plants across the country from the West Coast, there are three ways to handle the freight cost.  They are Freight Percentage, Landed Cost, and Freight Per Foot.  Each of them has a strong impact on your bottom line and we have our favorite at Standard Nursery LLC. 

Before I get into that, I do want to talk about how freight is handled from a broker or carrier’s perspective.  Freight is made up of several factors.  They are mode of transportation, miles, and stops. 

Mode could be flatbed truck, railcar, intermodal railcar, dry van, or reefer.  It also might include whether the operator is a solo driver or a team of two drivers, which tends to be more expensive since it’s expedited service.  We will examine modes of transportation in another article, but each has a different price with pros and cons. 

Miles just refers to the miles traveled from the first pick to the last drop.  The cost per mile fluctuates a tremendous amount throughout the year and prices can be affected by apple harvests, Christmas tree season, as well as shipping season in the nursery industry.  A good broker should be able to tell you what freight is running per mile off the top of their head because it is the basis for every single quote. 

Stops refers to how many pickups it takes to fill the truck and how many deliveries it takes to unload it.  One pick/one drop are the cheapest and most convenient but can be difficult for customers to ship a full truckload during the season.  That’s why it is important to develop a shipping lane with several customers in the same geographical area so they can share trucks together which keeps freight down and plants moving.  I typically plan on $100 per additional stop, whether a pick or drop.  Understanding those costs and the miles will help you gauge whether or not you’re getting a rate that is in line with the rest of the market.

Freight Percentage

               This refers to the value of freight divided by the value of the order.  For example, if an order is valued at $30,000 and the freight is $6,000, freight would be 20%.  This method is very common in the upper Midwest and East Coast.  It’s extremely common for prospective buyers to inquire, “What’s your freight percent?” when meeting a new potential vendor at a trade show. 

For customers, the upside of this method is that it makes it very easy to figure out your estimated landed costs and profit margin.  Armed with that knowledge, a buyer would be able to tell if a product is within their budget.  It also allows any retailers to pre-price their products early.  Most of them have a target in mind as well which lets them know if the vendor is in line with the other nurseries where they work. 

The downside of freight percentage is that it doesn’t allow the buyer to isolate freight costs separate from the plants.  The percentage is based on the costs of the plants.  Imagine two trucks that cost the same price.  One has high priced shrubs and so appears to have cheap freight.  The second has inexpensive 6ft tall arborvitae so freight appears exorbitant.  25% is a common target that vendors who use this method try to stay below and some have been known to pad their invoices with extra freight costs because the percentage still works out.

Landed Cost

               This refers to the vendor putting the cost of freight directly into the cost of each plant.  It’s a standard markup on the cost of the plants and there are two methods for this.  Some use the percentage method we just discussed to mark up their plants by 15-25%.  Others will mark the plants up by the container size, considering how many fit on a truck.

               For customers, there are several upsides to this method.  Buying is super convenient as there is only one cost to consider when making the purchase.  It also means there is only one invoice/PO per order, as opposed to having to issue a PO for freight as well.  That keeps both the busy buyer and their accountant happy.  For certain companies, the reduction in PO is enough to encourage their patronage.  One more upside is that you can analyze profit margin and pre-price retail tags before even shipping.  Another benefit is that the buyer is not subject to seasonal freight fluctuations. 

               The only real downside is that a buyer cannot isolate the freight costs to see if they are getting a fair price on freight or not.  That really only matters if their landed price exceeds the landed price of other vendors with freight factored in.  Even so, the quality of the product and convenience of ordering are valuable enough to justify the extra cost.  This method almost incentivizes those smaller combination loads as a good customer will get the same landed price per plant on a full truckload as they will on a partial shipment. 

Freight per Foot

               Freight per Foot is the cost of the truck divided by the total amount of feet occupied on the truck and then multiplied by the amount of feet used by each customer.  For example (table), imagine a 53’ Reefer that costs $6000 and has three loads on it with drops from Cedar Rapids, IA to Chicago, IL.  Assuming they fill the truck, it would be roughly $113.21 per foot.  You’d then just multiply that price by the amount that they are actually taking.  We prefer to round to the nearest $5 because it’s easier to tell the customer about round numbers and nobody wants to be charged for $0.08 on freight. 

Example Table:

Routing	Customer	Footage	Per Ft	Estimated	Freight
Drop 1	Customer A, Cedar Rapids, Iowa	10	$   113.21	$  1,132.08	$  1,135.00
Drop 2	Customer B, Davenport, IA	13	$   113.21	$  1,471.70	$  1,470.00
Drop 3	Customer C, Chicago, IL	30	$   113.21	$  3,396.23	$  3,395.00
	Total	53		$  6,000.00	$  6,000.00

               You’ll notice that the price per foot is the same for each of the three customers although the Chicago customer is technically further away from Oregon than the Cedar Rapids customer.  The reasons for this are simplicity first and then we also view combination loads as a partnership where each of the drops is relying on the others to be able to ship, so it all works out in the end. 

               The upside of managing freight this way is that a buyer can isolate the freight costs apart from any other considerations.  It gives clarity into what freight rates are doing throughout the season as well as if your price is in line with the market trends.  It also gives grounds for an honest conversation about freight costs when a truck ends up a little expensive because of extra drops on it to fill out the truck. 

               Although we’ll communicate freight costs in whichever method the customer prefers, we prefer Freight per Foot.  Either way, we always call our customers prior to shipping to get freight approval.  This is one last opportunity to make sure they’re ready to receive their product and see if they have any last-minute additions they’d like to make. It's all part of the service we offer when helping to ship orders to our customers. Hopefully you can see the advantages and why it's how we handle shipping costs.