State of Utah

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State of Utah

• Freight Program

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Nothing Moves For FreeNo Such Thing as
Free Freight
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Many vendors use freight pricing programs
as profit centers.

• Dr. Lee Buddress
• Supply Logistics Management
  Program
• Portland State University
• Comments from 2006 WSCA Conference.

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State Freight Program Overview

• A benchmark program (Selective Implementation)
• Statewide freight contracts and quotes are
  benchmark rates for vendors to beat. The
  assumption is the vendors will offer optimal
  rates in bid responses.
• Statewide freight contracts must be re-bid per
  state procurement law. No evergreen clauses.
• Statewide contract rate application
• Express small package delivery and LTL rates
  apply both ways, into and out of Utah points
  (Interstate) and within Utah (Intrastate) points.
  Uniform pricing for planning purposes. Rates
  are good for one year.
• Truckload one shot deals.
• Sporadic truckload shipments via van,
  flatbeds, bulk , over dimension, temperature
  controlled, etc.
• Carriers are selected for bids based on the
  type of shipments to be transported.
• Example Virco school furniture shipments.
  State truckload pricing based on current market
• pricing. Rates in effect
  for 30 to 90 days. Savings to Granite School
  District several
• thousand dollars per
  truckload on shipments from Los Angeles, CA to
  SLC.

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State Contract Summary

• Small Package Delivery
  Less-Than-Truckload
  Truckload
• Contracts
  (LTL)
• I----------------I-----------------I--------------
  ------I
• 1 ounce
  200 lbs.
  10,000 lbs.
  44,000 lbs.
  
• MA454 Fed Ex
  PD-136 UPS Freight
  Carrier examples
• MA2017 DHL
  (formerly Overnite)
  C.R. England, Inc.
• 
  
  Pride Transport, Inc.
• (WSCA Contracts) Up to
  approx. 6 pallets.
• Air and ground
  Base rates OVNT 560, Eff 4/30/2006
  Current transportation market
• shipments
  Discount 75
  
  pricing.
• 
  FAK 55, for classes 50
  through 125.
• Rates good for one year.
  Actual class rates above 125.
• Consider 2nd Day Service.
  Rates good for one year.
• Zip code driven pricing.
• Ref www.purchasing.utah.gov

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Competitive Bid Process

• Buyers have the right to route freight.
• Vendors provide freight data as part of state bid
  process.
• F.O.B. Terms domestic shipments.
• Example F.O.B. Origin, Freight
  Collect vs. F.O.B. Destination, Freight Prepaid.
• Freight Collect vs. COD. Not the same.
  
  
• Freight allowances are not always vendors
  carrier contract prices.
• Ask for actual freight costs not shipping
  handling.
• Watch bids where of total cost charged as
  freight.
• Sole source shipments watch freight ! !
• Shipping instructions on purchase orders must be
  specific when stating carrier routing
  instructions.
• Communicate with your vendors when first shipment
  is routed via state contract carriers so they
  follow purchase order routing instructions.

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Fuel SurchargesChallenges and Opportunities

• NEGOTIATIONS
• An art as much as it is a science.
• Know your vendor contract options, i.e. can you
  re-bid the contract, let it lapse, negotiate or
  just say NO.
• We work with a supplier to help defray fuel
  expenses not absorb them.
• What is the effective date of the contract?
  Important to know when comparing fuel prices at
  the time of contract award in relation to current
  requested fuel surcharge.
• 
  

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Factors in Considering Suppliers Request for a
Temporary Fuel Surcharge

• Fuel surcharges must be established on base line
  criteria. For example
• EIA Retail On-Highway Diesel Prices. Keep it
  simple.
• LTL fuel surcharges are lower than full truckload
  surcharges. Which are you being asked to accept
  into the contract?
• What is the total cost to manufacturer and
  transport the unit to Utah? What percentage of
  the total unit cost is fuel related? For example
  90 unit cost plus 10 freight/fuel cost total
  purchase price per unit. Require the vender to
  supply this detailed information in writing for
  your analysis.
• Focus on the fuel related freight cost of the
  transaction and not the total unit cost. Any fuel
  surcharge request should be based on the fuel
  related expenses (recent increases) not the total
  unit price.
• Is the proposed fuel surcharge a flat fee per
  purchase, a percentage of the purchase cost or in
  dollars and cents per mile?

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Fuel Surcharge Expectations

• What has the supplier done to hold the line or to
  reduce their fuel expenses?
• For example
• A. Bulk fuel contract purchases versus paying
  retail prices per gallon at the pump?
• B. Does the supplier have an ongoing program
  to reduce engine idle time?
• Highway Diesel Prices. Review cost per gallon
  history to ascertain a trigger
• price. Example If the posted weekly cost per
  gallon of hits 3.00 per gallon
• a surcharge will be allowed. The agreed to
  fuel index will be reviewed on
• the each Monday to ascertain the fuel surcharge
  from a printed surcharge table. If published
  cost per gallon falls below 3.00 per gallon the
  surcharge is waived.
• This trigger pricing must be stated in the
  contract or amendment along with the appropriate
  fuel index agreed to be used, i.e. gasoline,
  diesel, or jet fuel.

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Surcharge Audit Trail

• If surcharge is agreed to be sure to tie it to a
  published fuel pricing index, write it into the
  contract along with a trigger price and the fuel
  surcharge table. Keep it simple.
• Always require the fuel surcharge to be listed as
  a separate line item on each invoice.
• If a vendor surcharge table is incorporated into
  the contract be sure your accounting people
  paying the freight bills or vendor invoices can
  easily verify the surcharge, i.e. Using the EIA
  web site index to ensure proper surcharge is
  applied.

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Fuel Surcharge Summary

• View surcharge requests as temporary in nature
  and optional.
• Require suppliers to document their temporary
  fuel surcharge requests. Keep negotiations
  centered on the fuel related cost of the
  transaction not the total unit cost to deliver
  the unit to Utah.
• Tie any fuel surcharge to a published cost per
  gallon table with a trigger price whenever
  possible.
• Keep the audit trail simple so accounting staff
  can easily verify the application of the
  surcharge.

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Pre-Audit of Freight Bills

• No carrier is 100 accurate in billing of freight
  charges. There are humans involved in the
  process.
• If possible, always pre-audit freight bills or
  invoices prior to payment.
• Example Match warehouse receivers with
  purchase orders and freight bills.
• Verify accuracy against
  contract pricing.
• Incorrect invoices should be sent back to
  carriers for corrected billings.
• Shakes up carriers A/R system and hopefully
  generates internal exception reports.
• Avoid short payment of freight bills based on
  verbal authorization from carriers sales
  representatives or anyone else.