Are you covering your cost of out-bound shipping with what you bill to your customers? If you’re not folding your in-bound freight costs into your inventory value with Landed Cost, exactly how much margin is your in-bound shipping costing you?

These are hard questions to answer if you’re not tracking your revenue and costs appropriately—particularly since freight costs are now way up, similar to that of inventory just a few years ago.

Freight costs increased substantially four years ago during the global supply chain upheaval with shipboard containers backing up at ports and prices increasing 500% in just a few months. Two years later, based on a yo-yo of consumer shipping demand and numerous cartage companies overbuilding capacity, pricing crashes resulted in the demise of several major transport companies including the third largest LTL carrier in the US, Yellow Freight. Now, as the pendulum swings, freight costs are once again up significantly—particularly ocean containers from Asia to Europe as ships avoid the Suez Canal and attacks in the Red Sea, and from Asia to the east cost of the U.S. as a drought in Panama has limited passage through the canal to half normal.

If it’s been a challenge to manage the freight cost swings in your business, we have a suggestion to help, which requires three GL accounts:

1. A GL revenue account labelled “Outbound Freight Revenue” for the freight price you bill to your customers, separate from any product or service billing.

2. A GL COGS account labelled “Outbound Freight Cost” for only the cost of those shipments as billed by your shipper for shipping FROM YOU TO YOUR CUSTOMER. In the simplest scenario, you configure your AR Freight Codes to book the revenue to the dedicated income account and manually post your vendor AP invoices for only that outgoing freight to the Outbound Freight COGS. This will give at least a gross margin for your customer freight billings. But for a step beyondAccountMate enjoys integration to the vertical solution product ShipIt, which will record freight cost on a per-customer-invoice level for much improved analytical ability.

3. A GL COGS account labelled “Inbound Freight Cost” for only the cost of shipping goods TO YOU—being careful to keep this separate from your “Outbound Freight Cost” if you’re doing this manually via AP invoice entry. Of course, there’s always the option to implement the built-in Landed Cost functionality and fold your Inbound Freight Cost directly into the item cost itself.

In summary, the rise/fall/rise of freight costs in the last few years has been a challenge for many businesses. We want to be sure you’re aware of the existing processes in your system to provide the management focus that this now requires.

If you have questions, don’t hestitate to reach out to iSOFT.