What Freight Claims Really Cost

When most people think about the cost of freight claims, they think about the cost of the damaged product from an unresolved claim. They may also think about the cost of not being fully reimbursed for a your full loss, but there are a lot of other hidden costs in freight claims.

#1 Labor

It typically takes 2 – 3 hours to manually file a freight claim. This reflects the time spent filing the paperwork for the freight claim, but not the time spent on other freight claim-related tasks, such as:

• Carrier follow-up
• Repackaging damaged product to ship back
• Meeting with the carrier’s inspector
• Sorting through damaged product
• Looking for quotes on repairs or replacements
• Managing customers who expected to receive the damaged product

All of these things take a lot of time, and time is money! Already you should see how much more a freight claim really costs.

#2 Storage

If you have a large warehouse with excess space, you probably don’t consider storage as a cost of freight claims. But if damaged goods weren’t taking up space in your warehouse, you wouldn’t need the same amount of space, and you could manage with a smaller, less costly warehouse. So consider the following costs of your current warehouse, compared with the costs of a smaller one:

• Warehouse rent or mortgage
• Utility costs
• Property taxes
• Cost to dispose of damaged goods

#3 Salvage

Carriers expect you to mitigate your freight claim loss – for example, if the product is partially damaged and has some resale value, the carrier will only pay you for the difference between the original value and the current, lesser value. In theory, you’ve been reimbursed for your losses. But there can be disadvantages to selling salvaged products.

You may not want cheap damaged products competing with your new full-priced product. Or you may not want to risk your company’s reputation by selling sub-par damaged products with your name on it. While the carrier reimburses you for the damages, you will need to eat the loss of the salvage value if you choose not to sell the remains.

#4 Unhappy Customers

In the event that you are filing a freight claim because you shipped a product to your customer and it was damaged on receipt, you need to take your customer’s perceptions and actions into account.

• Will your customer be willing to wait to reorder from you, or will buy someplace else?
• Will they perceive your carrier’s mistake as poor service from you?
• Will they be willing to do business with you again?
• Will they tell other potential customers about their bad experience?

This can be especially damaging if they were relying on receiving the product by a certain date, or if they incurred costs due to not receiving the product as expected. Consider how much business you could lose due to one unhappy customer. Bad reviews and bad word of mouth from just a few customers could cost you a lot more than you think!

#5 Opportunity Costs

Costs that are rarely considered as freight claim costs are opportunity costs – those opportunities that were lost to your company due to the cost of freight claims. For example:

• What would you or your staff be spending time on if you weren’t filing freight claims?
  • For example, sales, customer service, or strategic planning
• What business endeavors would you be investing in if company cash was not tied up in freight claims?
• What percent interest would you earn if that money were simply placed in the company savings account?

Consider the return on investment for these activities. Also note that even if you recoup 100% of your freight claim losses, your cash may be tied up for several months before you are reimbursed. You also still took time to file the claim and deal with all the other issues. A 100% reimbursement is still a loss.

#6 Time Sensitive Losses

You may have been counting on your shipment to arrive by a certain date. However, unless you specified that a product would lose its value if not received by a certain date, the carrier is not obliged to reimburse you for this loss.

Another example of a time sensitive loss would occur for a retailer who receives a damaged commodity product such as light bulbs or grocery items. If they are out of stock when their customers need that product, chances are their customers will buy someplace else, and the retailer will lose that sale.

#7 Unfiled Freight Claims

Also consider the costs of small freight claims that go unfiled. While a $50 unfiled freight claim does not sound like much, ten $50 freight claims becomes $500, and one hundred $50 freight claims becomes $5,000…Do you know how many small freight claims are left unresolved?

Now that you understand how much freight claims really cost, you need to do something about them! The best way to deal with the costs of freight claims is through prevention. This can be done by actions before filing, such as inspecting freight before accepting it, or after filing, such as analyzing past freight claim data to understand where problems are arising, and how to eliminate them.