When to Refund Freight Charges?
By Splatty • Jan 18th, 2008 • Category: Misc Logistics
Not sure why, but in the past few weeks I have been barraged with a deluge of refund / discount requests from customers. Some of them legitimate and some almost laughable. In deciding when/if to refund freight charges to these customers, I started thinking about what are valid and justifiable reasons.
Here is my list:
Justifiable Reasons
1. Mis-routed freight
2. Customer Service error or omission
3. Extremely delayed freight due to lack of follow up / pro-activity in shipment monitoring
Non-Justifiable Reasons
1. U.S. customs inspections / delays
2. Weather related
3. Cancelled flights
4. Backlogs at the airlines
5. Delays in receiving documentation from customer
6. Delayed clearances due to improper or no classification from customer
Obviously the above details are not set in stone and I will also take into consideration any extenuating circumstances as well as the length of relationship with the customer when deciding whether or not to issue a refund or discount. The above list is definitely not an exhaustive list so I would be interested in hearing your comments on this. if you have had experience in either requesting a refund as a customer or issuing a refund as a service provider drop us a comment and let us know.
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I’ve always held the line “whenever it makes sense for your business”. There are some great customers out there, but there are also plenty of unreasonable blowhards who get “outraged” at every single problem or delay, no matter how minor or major, whether you had any control over it or not. While personally I’ve held a pretty tough line when it comes to unreasonable customers - they usually come back, because no one else wants to deal with them either - there have been occasions where, as a company, we did provide a refund or substantial reduction in order to maintain the overall business. Sometimes that meant giving in to an unsavory individual, but if it was national or global account and we didn’t want to risk the overall business we’d make exceptions from time to time.
I think your list is a good start. The first 3 justifiable reasons you listed are the most common situations where I’ve refunded freight, usually quickly and with a heartfelt apology. I can not think of a single instance where I’ve ever refunded a customer for US Customs or other Government related inspections / delays. I can remember one incredibly ridiculous and over-the-top irate customer where I ended the conversation - and our business together - by bluntly telling him that if he didn’t understand the intricacies of US Customs and other Governmental agencies as they related to his imports, then perhaps he was in the wrong business and should find other work. I later heard through the grapevine that he bounced from 3PL to 3PL before finally going out of business.
Reasons 2 and 5 there have been rare occasions that I described above where we refunded a client just to hang onto their overall profitable business. I’ve actually had quite a few occasions, although not regularly, where we reduced an invoice or cut the client a break for cancelled flights and airline backlogs, depending on what the cancellation was for. As for backlogs, I am sorry, but speaking as someone who has worked both sides of the fence I don’t find the backlog excuse a very good one. It’s the 3PL’s job to manage the airline and the air freight process, customers are relying on you to know which airline to use and to have enough clout with the airline to avoid such situations. Obviously if there is a weather, labor, or other such situation that is causing the backlog that’s one thing, but to simply tell a customer their freight didn’t move because the airline has a backlog from accepting or booking too much cargo is pretty lame and something your operations people should have known better.
As with reason number 1, I have never refunded a customer due to improper or no classification from the customer. If they are importing they should know better.
Here’s one that just came up recently for me: A shipment was held up at the port by the carrier. Reason unknown. After daily phone calls and e-mails, it was finally determined that the origin office didn’t release the seawaybill due to non-payment of prepaid origin charges. That fact in turn was disputed strenuously by the shipper at origin, but long story short by the time the carrier found out why the container was on hold, it had accumulated 5 days demurrage. We argued that we shouldn’t be responsible for any demurrage because the carrier admittedly didn’t know what the hold up was until 5 days after the last free day. How can we fix the problem if the carrier can not even tell us what it is? With our sales rep out of town, we ended up paying the demurrage just to get the container delivered, but when he is back we plan to ask for a refund. What do you think?
Here’s another non-justifiable reason, in my case, for issuing a refund: Chargeable volume or weight ends up being much higher than quoted. Despite notification at the time of shipment, your customer refuses the bill and insists to pay based on the original quoted volume / weight. And yes, you have all the nice fancy fine (or not so fine print) on the quotation that explains that it’s a quotation only and subject to change, etc. etc. etc. Customer says they will go with your competitor if you don’t honor their request. What would you do?
SwizStick - regarding the client that won’t pay the increased charges due to the increased dim weight, collect what you can and dump them. Chances are that if you even have to ask yourself the question of whether or not to give in to them, they’re not a premier client, and thus not worth taking the risk that this sort of thing will continue to happen. I had a client many years ago where we had quoted on an FCL job; the actual charges came in much higher due to something we missed in the quote. I had a good relationship with the client and explained the situation. He explained in return that on this particular job, he could not cover the additional costs, but we were welcome to bury it in a different job. He understood that things don’t always work out as expected, and we communicated and reached an agreement that worked for both of us. If your client can’t see that, then he needs to be doing business with someone else.
Hi Bob - great reply and spot on. For my own accounts, that’s more or less what I did, and more times than not the customer ended up sticking with us anyways, or if they went away they would come back because nobody is going to accept that. However, the company I was working for at the time more often than not came down on the side of the customer, which made sense if they were a key national/global account and the charges involved were negligible, but I’m not one to reward that kind of behavior. Sounds like your client was one of the good ones, those are the kind of customers you actually enjoy making happy.