FAK or Freight All Kinds is a pricing method used in the logistics industry to group different types of cargo under a single freight rate. This method of calculating freight charges works for LTL (Less-than-Truckload) or sea freight cargo.
How Does FAK Work in LTL Freight?
Depending on the items you are transporting, FAK can be an effective way to decide shipping rates and make the entire calculation process smooth.
For LTL shipping, the National Motor Freight Traffic Association (NMFTA) developed the NFMC system that organizes commodities into 18 different freight classes. The class number ranges from 50 to 500, with higher numbers indicating harder-to-transport items and thus the more expensive the shipping cost per hundred pounds.
Imagine the LTL goods you are shipping are under the same freight class, and it is easy to calculate the freight charges. But what if you have various goods under different freight classes? Which freight rate should you use? That’s when FAK pricing works. While the goods classification is certain, the Freight All Kinds rate can be negotiated between the carrier and the shipper. Normally, an average class rate is achieved.
How Does FAK Work in Sea Freight?
The FAK model works similarly for sea freight, where a flat shipping rate applies. Instead of using different rates for each type of goods, carriers apply a single, simplified rate per CBM or per ton.
Why FAK Is Used in the Shipping Industry?
The main objectives are to lower shipping costs for high-class goods, simplify the shipping process by reducing the need for reclassification, and offer fairer rates for both shippers and carriers. The shipper can also receive quotes more quickly.
For instance, you might ship different products in one load. With FAK, they’re all treated at the same class rate, even if some are technically “more expensive” to ship. And as mentioned above, FAK rates can be negotiated between shippers (or NVOCCs or freight forwarders) and carriers. Besides, there is no need to calculate separate class rates for every product, meaning less chance of pricing errors or reclassification fees.
Because of Freight All Kinds, managing numerous shipping cargoes under different types is less challenging for shippers and freight forwarders. This also helps in moving cargo from one place to another more efficiently.
Examples of Using FAK
The following are some of the examples of when shippers can benefit by using Freight All Kinds:
Ship Frequently and at Volume
Carriers often offer FAK to shippers who move volume regularly, especially if you’ve built a relationship or work through third-party logistics or a freight forwarder.
Ship Mixed Cargo
When you have to ship freight pallets that contain a combination of items with different classifications, consider FAK. It helps you lock in predictable, simplified, and often lower pricing if some goods are in higher-rated freight classes.
Considerations When Using FAK
There are a number of different scenarios when FAK is not available, or it will cost you more than usual. For example:
Cargo With Significantly Different Freight Classes
To qualify for FAK rates, your goods should generally have similar characteristics, such as weight, density, and ease of handling. Carriers are unlikely to offer a FAK agreement if your shipments include a wide mix of freight classes, unless you ship high volumes consistently.
Low-Class Freight
For low-class freight, carriers may be unwilling to offer competitive FAK rates since it already reduces their operational margins on low-class freight.
Even though shippers retain the individual classifications, it is still possible to negotiate volume-based discounts or targeted rate reductions with carriers.
Claim for Goods
While FAK is convenient, it can become complicated too when it comes to shipping fragile or expensive goods. For instance, if an item gets damaged during transit, claims are processed based on the FAK classification, not the individual item’s actual freight class.
This reduces the compensation a shipper receives for their products. Therefore, shippers transporting high-priced or fragile items should carefully evaluate FAK agreements and consider additional insurance or alternative shipping options to protect their cargo.
High Risk Goods
FAK rates are usually designed for general cargo of consistent density and packaging. Each carrier or NVOCC may have its own list of exclusions in its terms. For example, if your goods require special handling, like temperature control, or the goods contain hazardous materials, you can not apply for FAK pricing.
Transportation Management System Integration
Modern transportation management systems (TMS) can improve pricing accuracy, reduce errors, and may reduce the need for FAK in some operations. It enables shippers to manage and calculate freight rates for shipments with multiple classes in real-time. In many cases, companies use both: a TMS to manage shipments and FAK agreements to simplify pricing.
Conclusion
Freight All Kinds is a valuable strategy. By assigning multiple types of cargo under a single freight rate in LTL freight or sea freight, businesses can streamline their shipping processes, reduce costs, and focus on growing their core operations.
However, like any logistics strategy, FAK only applies to certain cases. Understanding FAK and its potential impact on your supply chain can help you make more informed decisions and stay competitive in the market.
FAQs
What does FAK mean?
FAK is a pricing method used in freight transport where multiple types of goods are transported together under a single freight rate.
Which factors determine LTL freight rates?
LTL freight rates are closely tied to freight classes, which are determined by factors like weight, density, handling, etc. Distance and base rates also affect the final cost.
When should you avoid using FAK shipping?
It is recommended to avoid using FAK shipping when you are transporting mostly low-class cargo, high-volume items, or hazardous goods.
