Demystifying LTL Freight Classification
The National Motor Freight Classification® (NMFC®) system can be overwhelming. But manufacturers that understand how carriers classify freight can find creative ways to lower their costs for less-than-truckload (LTL) shipments.
Factors Affecting Freight Rates
The NMFC groups commodities into 18 classes based on the following four characteristics:
- Density,
- Stowability,
- Handling, and
- Liability.
The lowest (and least expensive to ship) is class 50, which includes durable, high-density items that fit neatly on a standard pallet. The highest is class 500, which includes gold dust (high liability) and ping-pong balls (low density). Carriers also consider other factors, such as weight, distance and packaging.
Since the end of 2012, computer equipment, medical kits, hand tools and televisions have seen their freight classifications change under the NMFC system. More changes are expected in the future.
Creative Ways to Lower Costs
Here are some possible ways to qualify for lower freight classes:
Master the bill of lading (BOL).
This contract between shipper and carrier specifies what’s being shipped, where it came from and where it’s going. Mastering this document can help you identify NMFC loopholes.
For example, you may qualify for a lower classification by declaring a “released value” on the BOL that’s below the commodity’s standard NMFC released-value range. Or, for shipments near the next density break, consider artificially inflating the density to qualify for a lower freight rate. This practice — known as “bumping” — must be indicated on the BOL. Both strategies require strict compliance with NMFC and carrier-specific rules, however.
Code shipments carefully.
Freight classifications vary depending on what’s being shipped and how it’s packaged. Changes in your packaging and manufacturing specifications may affect your customary freight classifications. Carriers have the right to challenge classifications listed on every BOL. If you’re wrong, you may incur extra reclassing fees on top of the incremental shipping costs.
Adjust packaging.
You may qualify for a lower rate by reducing a container’s size or handling requirements or the probability of incurring damage during transport. For instance, consider shipping goods disassembled for easier stacking or securing cartons with banding or breakaway adhesive to minimize breakage.
Seek outside perspectives.
A CPA who specializes in manufacturing can audit your freight processes for misclassifications and inefficiencies. Ultimately, you may decide in-house resources are insufficient to effectively manage freight costs and, instead, hire a third-party logistics company.
Turn lemons into lemonade.
Manufacturers that understand the ever-changing NMFC rules reap more than short-term cost savings. They can turn shipping from the source of their daily headaches into a competitive advantage. Contact your advisor if you have questions about NMFC requirements.
