HAVING AN EQUALIZED “FREE FREIGHT” PROGRAM KILLS PROFITS, SO CHANGE IT
It’s common for shippers to have an equalized free freight program. What I mean by equalized freight program I am talking about offering “free freight” to customers who purchase a certain amount of volume of goods, regardless of their geographical location. The problem is transportation costs vary across different geographical areas. That ends up varying gross profit margins in those same geographical areas.
Off-setting "Free Freight" programs by taking into consideration geography can set the stage for healthy profits.
The solution to this doesn’t require quantum physics or even more than a few paragraphs from me. It’s rather simple. Shippers can improve their gross profit margins by reviewing transportation costs over their customer base or geographical area to get a good handle of the impact to profits. Then alter the “free freight” program to geographical areas that are taking the bigger hit on freight by implementing a surcharge or an increase in product price.
Once the financial implications are understood, shippers can create rules. An example would be to give “free freight” within a certain radius. Then, there could be an outer radius where freight is free after a certain fixed surcharge. If another radius level makes sense, then the surcharge can be bigger.
The bottom line take away from this article is that there is no reason companies need to make less profit margins just because a customer is in a faraway geographical location.
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