Understanding FAKs: Why They Matter and Where They Stand Today

...See what I did there?

Instead, I’m going to take today’s edition to break down FAKs and why they are used for LTL pricing.

I’ll also insert my opinion about the viability and usefulness of FAKs in today's market... so buckle up, I'm about to spit some straight FAKs!

What is an FAK?

"Freight of All Kinds" (FAK) is a pricing strategy used by LTL carriers that allows multiple freight classifications to be billed under a single, negotiated class. 

Traditionally, freight is categorized into 18 different classes by the National Motor Freight Classification (NMFC) system, with each class affecting the shipping rate differently. 

With an FAK agreement, all goods shipped under various classes can be billed at the same rate, simplifying billing and potentially reducing costs.

Why Carriers Used FAKs in the Past Decade

Over the past decade, FAKs became popular because they offered several advantages for both carriers and shippers:

Cost Efficiency for Shippers: By allowing multiple items with varying freight classes to be consolidated under a single rate, FAK agreements often resulted in cost savings. 

Lower-class items could effectively be shipped at the same rate as higher-class items, reducing the overall cost per shipment.

Simplified Operations: For shippers dealing with a wide range of products, FAKs streamlined the shipping process.

Instead of managing multiple classifications, which can be administratively burdensome, shippers could apply a uniform rate, reducing errors and simplifying invoicing.

Risk Mitigation: FAK agreements minimized the risk of reclassification charges, which could occur if a shipment's class was incorrectly labeled. 

This was particularly valuable for companies with complex supply chains that regularly shipped mixed loads.

Why FAKs Are Not Used as Often Anymore

While FAKs were a great solution in the past, their usage has declined in recent years. Here are some reasons contributing to this trend:

Lack of Transparency: FAK rates are typically negotiated privately and are not publicly available. This makes it challenging for shippers to compare rates across carriers or to ensure they are receiving the most competitive pricing. 

Without clear visibility into pricing, some shippers have moved away from FAK agreements in favor of more transparent options.

Potential for Misclassification: With FAKs, there is always a risk that goods are misclassified, leading to incorrect pricing or disputes. 

Additionally, FAKs might not be suitable for all types of shipments, particularly for high-value or specialty items that require specific handling, security, or temperature control. 

As shippers became more aware of these risks, the reliance on FAKs diminished.

Limited Flexibility for Diverse Freight: FAKs are designed to accommodate a broad range of commodities under a single classification. However, for companies that ship specialized or sensitive goods, the lack of flexibility can be a significant drawback. 

As a result, many shippers prefer tailored agreements that better align with their specific needs.

Service Levels and Claims Issues: When something goes wrong (think lost or damaged shipments), FAKs can complicate the claims process; different commodities under a single classification can have varying values and risk levels. 

Shippers seeking to ensure adequate insurance coverage have found that traditional class ratings offer more consistently accurate protection.

Opinion: Why FAKs May Not Be Relevant Anymore

In today's market, FAK agreements carry too much 'risk' for carriers. 

To mitigate this risk, carriers often 'price in' the uncertainty, which can lead to FAK agreements actually costing shipper clients more money than necessary. 

If shippers provided clean data with accurate dimensions and NMFC codes, carriers could price shipments based on true freight class ratings. 

This transparency not only reduces the need for risk premiums but also aligns costs more closely with the actual nature of the freight, leading to potentially lower and more predictable shipping costs.

FAKs had their moment…

but in today's market, the lack of transparency, flexibility, and risk management makes FAKs less appealing for many shippers. As the LTL landscape evolves, finding the right pricing strategy means embracing clarity and customization over just one-size-fits-all solutions.

Ready to take control of costs and protect your bottom line? 

Click here to start a conversation with someone on our team to find the pricing strategy that works best for your business, and #LetsTalkLogistics! 🚀