How to control returned-goods freight costs

By Ray Bohman -- Logistics Management, 4/1/1998

Most logistics departments work hard to control freight costs on outbound shipments of finished products and on inbound shipments of raw materials and parts. But there's another expense that manufacturers seldom address that can amount to tens of thousands of dollars annually in excess costs: the return of product to the shipper.

Manufacturers routinely take back product from customers for a host of reasons--the merchandise was damaged or defective, it came in the wrong style or color, or it was shipped too soon or too late. And the manufacturer pays the freight in most cases. Yet typically the customer estimates the weight, guesses at the bill-of-lading description, and routes the shipment via a carrier that has no pricing agreement in place with the manufacturer. We have seen freight bills for $500 that should have been $50. A customer, for example, might show 300 pounds on the bill of lading when the piece only weighed 50 pounds. Another customer might describe the contents generally rather than specifically, causing the carrier to rate the shipment at Class 200 rather than 100. Yet another customer fails to show the shipment's density on products falling under the multiple scale of density ratings, and the carrier assesses it as, say, Class 400 rather than Class 70 (such as on Plastic Articles - Item 156600, Sub 1-9). And customers typically route via one of "their" carriers--a regional carrier on a transcontinental shipment or vice versa--and the result is an interline shipment with no discount but with significant accessorial charges applied.

The logistics department can eliminate this needless expense by meeting with the Customer Service Department and devising a "Return Goods Authorization" (RGA) form to address the following routing and bill-of-lading issues:

(1) Carrier routing. Be sure pricing is in place. Show the same carrier as on the outbound original shipment. If you have an FAK rating on your outbound prepaid, be sure you have the same FAK rating on returned goods moving inbound collect.

(2) Correct weight. Customer Service should look up the correct weight in the price list and show it on the RGA. Do not let (or force) the customer to guess.

(3) Correct bill of lading description and class (or FAK). On the RGA, show this information for customers to use when they fill out their bills of lading to the carrier. That will keep the carrier from guessing and applying a class that is two to three times higher than actually applies.

Better yet, Customer Service should complete the bill of lading for the customer showing the three items above and attach it to the RGA. All that is needed here is a system that can be devised with little time spent. The savings can run into the tens of thousands of dollars annually for the typical mid-size manufacturer. That reduction in freight expenses goes right to the bottom line.

Ray Bohman is a well-known consultant and author. Mr. Bohman is editor of several highly successful newsletters on transportation and is a consultant to a number of national trade associations. He is president of The Bohman Group, consultants and publishers in the freight-transportation field. His offices are located at 27 Bay Lane, Chatham, MA 02633. Phone: (508) 945-2272.