Learn the details you need to know about getting your product to market.
Freight affects your timing and end pricing.
Once you’ve brewed your craft beer or cider and then packaged it in a keg, can, or bottle, the next step is getting your beverage transported to its destination. Dealing with transportation, trucking, and freight can be a whole new unknown world with an entirely new language to learn. Whether you decide to handle the freight yourself or task your wholesaler with it, you’ll need to learn how freight affects your timing and end pricing.
Beer and cider are classified under the innocuous sounding freight class 65. The freight class system was created by the larger freight companies to help classify the various types of freight and their corresponding profitabilities. Products classified as 65 are not the favored fare of freight companies. Beer and cider are bulky, heavy, inexpensive, and due to their weight; cause added deterioration to equipment. Because of this, booking transportation for your craft beverage can be a daunting exercise that if done improperly can drastically increase the price to consumer.
Haulers prefer high priced, lower weight freight. A trailer full of TVs? Yes, please! The key to getting around your product’s unfavorable freight status is to find a good freight broker. A broker is an independent actor who has connections with multiple freight companies and truckers. Because their entire business is booking freight, they’re providing a lot of business for companies and thus know the system and can get much more favorable rates. Zach Taylor of Merit Solutions briefly described how they work with carriers: “They (LTL Carriers) have secondary options for pricing, and us as brokers utilize the secondary. We don’t go with the normal structure of pricing.” If you were to call a freight company directly, your product would be class 65 and would get their standard rate. This rate is probably two to three times the rate you can get through a good broker.
Pallet - The wood device used to stack product on.
Spot - The space a full stack takes up in the truck. A spot would consist of a full stack of bottles (72 24/12oz is standard or 75 12/22oz). A spot of kegs would involve a double stack of pallet: 8 1/2bbl or 50L on the first pallet with a second set of 8 on another pallet that’s then stacked on top. A full spot of 1/6bbls is two pallets of 20 each stacked on top of each other.
LTL (Less Than Truckload) - These are the large freight companies that move product between various trucks and transit centers.
Truck Load Carriers - These are the direct trucking companies that move freight through more direct routes.
LTL vs. Truck Load
LTL carriers are the large freight companies, like UPS or FEDEX, that move freight all around the world. When you use them for transportation, they’ll send a local truck to pickup your shipment which will then go to the local transit center. From there, it’ll bounce from transit center to transit center until it reaches the destination’s transit center where it’ll go out on another local truck to the final receiver. This often provides the least expensive option.
However, there are some things to be wary of when using this method. Each time your product is handled, it creates an opening for your product to be broken or lost. Indeed, I had a six spot order show up with only five spots on the truck. We finally traced the missing pallet back several transit centers away. Fortunately it was found and eventually landed on our dock. This could have been a catastrophe if it had been a time sensitive product for a festival.
Truck load carriers are more often independent truckers or trucking companies that deal in more direct routes. They tend to fill up a truck, often from multiple local stops, and then hit the road. The advantage of this sort of option is your product will arrive more quickly with less handling and opportunity for mishap. The disadvantage is it costs more.
The biggest determination of your costs is, obviously, the location of pickup and delivery. However, this basic principle is governed by international freight supply and demand. For instance, I pay nearly as much per spot of beer out of California as I do from New Jersey. My warehouse is in Oregon. Why is that?
Simply put, California hosts some of the country's largest and busiest ports. This means demands for trucks OUT of California are high and carriers can get much better rates moving goods from California. The east coast, however, hosts a significant portion of the American population in a fairly tight geographical area. Because of the high population and density, it’s a net consumption area when it comes to freight. That means that there are a lot of goods being moved into the east, far more than it produces, even with its ports. So trucks take in profitable loads to the east coast then do anything they can to find some means of at least covering their costs to get out of the east coast. That means I get cross country freight out of New Jersey, the home of many of the warehouses that store the beers I’m buying from importers, at a really good price.
And although it’s early in the game to be considering this, the location of your brewery can play a big part in your ability to get your product shipped to new markets at a reasonable cost. For instance, Barley Brown’s, one of the most award winning small breweries in the US, is located in Baker City, Oregon. It’s a small town in rural eastern Oregon. Despite it’s location on the busy I-84 corridor, not a lot of freight goes in and out of Baker City, let alone refrigerated trailers. There have been times when the per spot cost of Barley Brown’s was more expensive than freight I was pulling out of Florida, literally on the opposite side of the US.
But don’t forget, not only do we have to get full kegs FROM Baker City, we have to get the empty cooperage BACK as well. However, sending the empties back will usually cost less since the bulk of the weight, the liquid, is gone. Another bonus to sending empty kegs back is you can triple stack them. So that means 24 1/2bbls and 60 1/6bbls to a freight spot. That’s two-way shipping to an out of the way destination that keeps adding to the final price to consumer. Fortunately, Barley Brown’s beers are highly sought after and consumers will pay the slightly elevated costs the additional freight brings.
Calculating Freight Costs
We’ve looked at some of the considerations affecting the macro freight pricing but let’s drill down to the micro level and look at how freight affects the price of your product.
Let’s assume you’re paying $300 per spot of on your load. Let’s also assume $150 return freight for the empty kegs. Assuming the quantities I mentioned above, your per case cost of freight will be:
24/12oz - $4.16 freight per case
12/22oz - $4 freight per case
1/2bbl - $18.75 + 6.25 = $25 freight per keg (round trip)
1/6bbl - $7.50 + $2.50 = $10 freight per keg (round trip)
To get your laidin cost, you’ll add the FOB (case cost when picked up) + freight cost + taxes = laidin. The final price to retailer (PTR), is calculated by taking laidin and dividing it by the margin. So:
FOB - $20 for a case of 24/12oz
Freight - $4.16
Tax - $0.20
Laidin - $20 + $4.16 + $0.20 = $24.36
At a 30 percent margin, assuming you’re working with a wholesaler, the PTR would be: 24.36/.7 = $34.80. If you increase the freight cost but just $1, your PTR goes up to $36.22. So you can see, getting good freight rates can really affect the end cost of your goods. With a poor freight choice, you can end up making your final price point less attractive to consumers who may pass by your product in favor of one that’s a bit more economically friendly.
And be sure to fill out the pallet. Sending partial pallets increases the freight costs per unit. You’re paying for an entire spot on the truck. If you’re wholesaler is paying for the freight, let them know if there’s a partial pallet so they can add more to the order. It’s better for your sales as well as the final costs.
Other Freight Considerations
Weather is the another major component of freight choices. If you’re brewery is located in the northern part of the U.S., you know how important it is to protect your product from freezing. The same goes for product moving through the heat of southwest deserts in the summer.
The base option, and least expensive, is a standard dry trailer. It’s your standard metal box with no added protection. The vast majority of freight gets moved around the country in this option and in most cases it will serve your needs fine. However, beer is a perishable items that can be affected by heat, especially highly hopped beers, or can freeze if it’s cold enough.
According to Zach Taylor of Merit Solutions, an independent freight brokerage that specializes in moving beer and cider, weather protection options can be all over the map and can end up being a “buyer beware” situation. When I asked him about freeze protection, he described situations that ranged from highly technical climate controlled trailers with actual insurance to much more esoteric methods. These can include throwing blankets over the pallets or using a large heater to blow warm air into the trailer at each transit stop. Other drivers or companies just keep the load moving instead of stopping hoping to minimize their exposure to more extreme weather.
That’s a lot of variability and just plain “hoping” things don’t freeze. Your best bet is to ask the questions on how a “freeze protect” option is being implemented. But ultimately, the best option is to take an “insured against freeze” bid. Even if you’re paying for “freeze protection,” your product could arrive on the dock frozen and the claim can be denied. I always ask for multiple options when the weather along the route is bad. By trusting a good broker, like Zach, you can get a more honest look at what your risks are; allowing you to make a better educated decision. Sometimes that insured bid can look a bit more daunting than other options, but then when you break the costs out per case and consider the potential loses both in terms of the actual product as well lost revenue from not having that product available to sell, it starts to look a lot cheaper.
Another factor that freight companies or bookers consider is the total weight/space of the load. If you’re just moving one spot of product, you’ll be paying a much higher rate per spot than if you're shipping more. According to Zach of Merit Solutions, the first price breaks on the “Spot Market” come at 2-3+ spots or around 4,000-5,000+ lbs: “The reason they term it the “Spot Market,” it’s more of a spot price. It can change from day to day depending on the supply and demand of the trucks in that region and how much freight there is leaving.” Obviously the bigger the shipment, the more enticing it is due to its convenience as one stop versus many small stops. This will be an additional incentive to offer a better per spot rate.
The final option to consider is how long you have to get the product to its destination. Sometimes due to variable brew schedules, events, or sales consideration; you’ll need to move your product to its end point quickly. You can ask for expedited bids to compensate for this. These rates, because of their nature, will be more expensive than standard rates. Be sure to ask for multiple bid options with an estimated time of arrival. Once you’ve selected your bid, you can work with your freight coordinator to track the progress.
Craft Beverages to the People
Moving your product can be a complex problem that can add hassle and price to your product. Whether you choose to book it yourself or have your wholesaler manage that side of things, knowing all the factors that can affect your product will help you with your long term growth strategies. But ultimately, my best piece of advice is to find yourself a good broker, that knows the right people and the questions to ask. Finding the right business partner in the freight world can go a long way to making your task as a brewer a lot easier. After all, you’re a professional craft beverage maker, not a freight specialist.
Liked this article? You may also like: Boost Your Craft Beverage Sales by Hiring a Wholesaler.