What is premium freight? Many people may wonder about this question, so let’s explore what this term means.
It is a type of cargo that is considered more valuable than the average shipment. This could include high-end furniture, art pieces, or other luxury items.
When it comes to premium freight transport, there are a few things that business owners need to know.
Here, we will provide an overview of what you need to consider when shipping high-value shipments. The post will discuss the meaning and calculation of premium freight, the meaning of premium shipping, and freight vs shipping.
Premium Freight Meaning
It is the additional charge paid to a transportation provider to receive expedited or guaranteed delivery of goods. Premium freight usually refers to time-sensitive shipments, meaning they must be delivered by a certain date or within a specific timeframe.
The fee charged for premium freight is typically based on the weight and size of the shipment and the distance it will travel.
What is Premium Freight Authorization?
Premium freight authorization (PFA) is a tool used in materials management to generate and authorize urgent production orders. PFAs are usually created to meet customer delivery deadlines that have been missed or when stock on hand is not enough to meet customer demand.
Freight Charges
The freight charge is the amount paid to a transport provider to use their services to deliver goods from point A to point B. In other words, it’s the cost incurred for moving goods across long distances.
Paying a freight charge will typically include organization service fees, port service fees, ocean service charges, and others. This means that there are more ways than just one where a company can collect these costs from you if they have chosen not to absorb this particular fee themselves.
Things that Make Premium Freight a Needed Business Practice
- Rapid product launches
- Required to develop efficient global supply chains
- Logistics challenges
- The necessity to bring down storage costs
- Helps the company to cut costs and complete the project on time
Evaluate your storage costs using our Online Storage Costs Calculator
Premium Shipping Meaning
When a vendor offers “premium shipping,” they offer fast and traceable shipping. This type of shipping is typically more expensive than regular shipping, but it provides value by ensuring that the customer’s order arrives quickly and can be tracked along the way. This service is essential for high-value items or items needed in a hurry.
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. But, then also, slight differences are there between them.
| Freight | Shipping |
| Transportation of goods or products happens in bulk quantity. | But in shipping, transportation takes place in a smaller amount. |
| It can be for commercial purposes only. | It is cheaper to transport goods because it transported in bulk |
| It 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 the 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 essential to monitor the freight charges paid and review the reason for that for an organization.
- This report helps track the amount spent on freight which is the extra cost for the company.
- It allows the company to review the reason for the extra fee and helps the company find out the problem.
- Monitoring report helps to avoid, reduce, or eliminate freight expenses.
The marketing, dispatch, and packing departments 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 challenging to avoid freight expenses. However, it will be a meager amount for the management.
But when the final financial report shows a crossed amount of premium freight, that will affect the economic balance of the company.
Premium Freight Calculation Example
Calculation of premium freight percentage is crucial to know about the actual cost of your supplies. In addition, it helps to find a way to reduce the cost of shipping.
There are two ways to find out the percentage of the freight.
First way: You need to find out the shipping charges of your goods for a given period. For example, consider the period from July to December.
Assume that the shipping charges for July to December are $400. Next, you need to find the average inventory costs for that period.
To find that, you must determine the beginning inventory cost and ending inventory cost. Then, add them and divide them by 2. Finally, it gives you the average inventory costs.
Let us assume $4500 as the beginning inventory cost and $5500 as the ending inventory. Now average inventory = $4500 + $5500/2 = $5000.
Now divide the shipping cost by the 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 shipping cost of that inventory. Then divide the shipping cost by the total cost of delivered items.
Let us assume that $400 is the cost of delivered items, and $20 is the shipping cost of those items. Now $20/$400 = 0.05 X 100 = 5 percent is the freight percentage.
FAQs
How Can Companies Minimize Premium Freight Costs?
To minimize Premium Freight costs, companies can optimize inventory management, streamline production processes, improve supply chain visibility, negotiate with carriers for better rates, and use advanced planning tools.
When Should Premium Freight be Considered?
Premium Freight is recommended for time-sensitive shipments, urgent orders, production delays, or critical supply chain disruptions where meeting delivery deadlines is paramount.
Conclusion
Premium freight is a form of transportation that offers an alternative to the economy and standard commercial shipping options.
In many ways, it provides more protection for your products and faster transit times. But you may be wondering what makes premium freight so different from standard services. This blog post explained how they are alike and where they differ in terms of cost, time frame, and service.