This article tells about the definition of premium freight, things that make it a needed business practice, and informs you about the difference between freight and shipping.
Premium freight meaning
Premium freight is the additional charges paid to a transportation provider to expedite shipments to meet a required date. Often used as a partial measure of on-time shipment performance.
Things that make premium freight as needed business practice
- Rapid product launches
- Require to develop efficient global supply chains
- Logistics challenges
- Necessity to bring down warehousing costs
- Helps the company to cut costs and complete the project on-time
Difference between freight and shipping
Generally, the meaning of freight and shipping is almost the same. Both freight and shipping are the transportation of products by air, land, or water. Then also small differences are there between them.
Basically, in freights, transportation of goods or products happens in bulk quantity. But in shipping transportation takes place in a smaller amount.
Freight can be for commercial purposes only. Whereas shipping can be for both commercial and non-commercial purposes.
Freight is cheaper to transport goods because it transports in bulk. But shipping is a little expensive.
Premium Freight monitoring report
The below image shows the format of premium freight monitoring report.
The monitoring report contains the name of the customer, type of product, date, amount of freight paid, the reason for the late delivery and paying the extra amount, and remarks if any.
Importance of monitoring report
It is very important to monitor the freight charges paid and review the reason for that for an organization.
- This report helps to track the amount spent on freight that is the extra cost for the company.
- It allows the company to review the reason for the extra fee and helps the company to find out the problem.
- Monitoring report helps to avoid, reduce or eliminate freight expenses.
The marketing department, dispatch department, and packing department are directly responsible for freight charges.
The company can avoid this by giving awareness training to all these departments with the help of a premium freight monitoring report.
But in some cases, it is difficult to avoid freight expenses. However, it will be a very low amount for the management.
But when the final financial report shows a crossed amount of premium freight, that will affect the financial balance of the company.
Premium freight calculation
Calculation of premium freight percentage is crucial to know about the actual cost of your supplies. It helps to find a way to reduce the cost of shipping.
There are two ways to find out the percentage of freight.
First way: You need to find out the shipping charges of your goods for a given period of time. For example, consider the time period from July to December.
Assume that the shipping charges for the period July to December are $400. Next, you need to find the average inventory costs for that period of time.
To find that you are required to determine the beginning inventory cost and ending inventory cost. Add them and divide them by 2. It gives you the average inventory costs.
Let us assume, $4500 as beginning inventory cost and $5500 as ending inventory.Now average inventory = $4500 + $5500/2 = $5000.
Now divide shipping cost by average inventory cost. That is $400/$5000=0.08 X 100=8 percent is the freight percentage.
Second way: First you need to determine the total cost of your delivered inventory. Next, find the sipping cost of that inventory. Then divide shipping cost by total cost of delivered items.
Let us assume, $400 is the cost of delivered items and $20 is the cost of shipping of that items. Now $20/$400 = 0.05 X 100 = 5 percent is the freight percentage.
Get more definitions about premium freight and other ERP related terms here.