An Introduction to Freight Claims

Ahhhhhhhhh!!! If you’ve ever had to deal with this aspect of transportation, I’m sure that you’ve had a similar reaction to this topic. Whether you are a grizzled veteran or just getting your feet wet in transportation I’m sure you’ll find a few choice nuggets of value here as we explore the convoluted world of Freight Claims.

Let’s start at the beginning for those novices who are reading along. “What is a Freight Claim?” Every supply chain requires the use of transportation at some point and most of us have multiple transportation needs within a single supply chain. Typically, the goods get from point A to point B without a problem.  Sometimes the goods get lost, damaged or completely destroyed in the care of the transportation company.

A Freight Claim is the paperwork you must go through in order to recover some of the lost revenue due to the goods being damaged or destroyed. Seems like a simple enough idea… the transportation company broke it so they need to pay for it, right? I only wish the process was so simple. Let’s examine what a Freight Claim can encompass and what losses the transportation companies will not absorb.

One of the core costs is the value of the goods. In the case of a damage, the freight company will pay for the cost to repair the goods and will require a commercial invoice for this repair cost. In the case of a loss or unrepairable damage, the freight company will pay the fair value of the goods and require the commercial invoice of the goods in this specific shipment to set this value. So, in the case of a retail shipment, if the goods were discounted for any reason then the carrier would reimburse this same discounted value.

Another cost that is often overlooked is the cost to ship the replacement goods. Even with the total cost of the goods reimbursed, if the replacement shipping cost is not claimed then your company is still suffering a loss due to increased transportation costs. Should a replacement be required, the additional cost of shipping can be claimed by adding the invoice for the replacement shipment (not the original) to the Freight Claim.

There are MANY costs that cannot be claimed. If the damaged goods resulted in the loss of a large sale, the loss of a big client, the costs associated with manufacturing standing still due to lack of raw materials, or any similarly related costs that are indirectly related to the loss of a shipment are all factors that transportation companies will NOT cover. Since these costs will not be covered it is beneficial to have a ‘Plan B’ in place to keep these costs as low as possible.

What does this mean for a supply chain or operations professional? Any transportation in your processes is an area that needs a constant Risk Management assessment. How do you service customers who have damaged product? How quickly can you get a replacement shipment out? What does your manufacturing center work on while waiting for raw material? Answering these questions prior to a transportation failure is key, remember: Intentional rather than Instinctive.

Once you have the correct information gathered to submit a Freight Claim, the transportation company will process the claim and should everything line up then they will make a payment. Unfortunately, there are many factors that can arise to negate your claim. If the goods arrived damaged but were not properly notated by the receiving party then you’ve got little to no ground to stand on. Furthermore, the transportation companies limit your claim to a certain dollar amount per pound… so if your goods are expensive and light (like most finished goods these days: electronics, personal goods, luxury items) then you’ll find your claim of 10k being paid at 1/3rd of that amount or less.

So, like I was saying… Ahhhhhh!!!!

Challenge: Have a frustrating story about transportation or a helpful insight on how to best approach transportation issues? Share it with the community and leave us a comment below!

“Only now did I recognize the reciprocal relationship which exits between manufacturing power and the national system of transportation, and that the one can never develop to its fullest without the other.” – Friedrich List (1789-1846)

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