Look at the Fine Print: Three “Free” Freight Terms to Watch Out For


Healthcare contracts are no doubt complex; one health system may have many contracts with a single supplier, each for different product lines and different business segments. Keeping track of the pricing and ensuring your health system is paying the correct price for what you purchase is one thing…but what about those freight terms in the fine print? Each contract for each product may have different freight terms, and while they often take a back seat to product pricing, they can have a significant impact on your bottom line and the logistical operation of your organization.

The variation of terms across suppliers, let alone across multiple contracts with one supplier, certainly doesn’t make it easy to manage freight. One of the biggest mistakes we see supply chain and materials management professionals make is taking terms touted as “free” at face value. When negotiating contracts, watch out for these three common “free” freight terms and peel back the onion…

  • Free freight on ground shipments
    If you have free ground shipping for freight when everything you order from that supplier is shipped next day air or priority overnight, does it really help your bottom line? Unless you can change the ordering behaviors of your buyers, it is not likely you will get any value from your free ground freight terms.

  • Free freight on contracted items only
    When purchasing places an order that includes non-contracted and contracted items in one single order, do you pay for shipping or not? The answer is yes. In most cases you can order nine contracted items and one non-contracted item, for example, and that one item off contract will cause you to incur the shipping fee. 
  • Free freight with purchase order limits
    This means the supplier requires orders to meet a certain dollar threshold to get free freight. Let’s say the minimum is $1,000. If you are a larger healthcare system, you may be placing multiple orders from different departments and different locations with no single order exceeding $1,000, but, in total, your health system may average more than $20,000 in daily purchase orders. In most cases, the supplier’s order entry systems have no way to combine multiple purchase orders, so you end up paying for each shipment separately.    

This is just the start. Some other common terms, each fraught with their own problems to track and manage, include:

  • Free freight with delivery deadline time limits
  • Free freight on certain days of the week
  • Free freight for delivery at the “main” campus in a health system and not the other locations or hospitals

In addition to the so-called freebies, healthcare supply chain professionals should be cautious of handling fees in lieu of shipping charges. Handling fees can sometimes be more substantial than the actual cost to ship. In all fairness, some suppliers do have specialized custom packing or processes that may warrant the additional fee, but it is yet another cost that you need to investigate and understand. 

In today’s market where more and more health care systems are using 3PL companies to manage freight expense, buyers should also be aware of any fees that a supplier may charge for use of the hospital’s carrier account number to ship product. Punitive fees can negate any savings that the health system is trying to obtain using their own negotiated shipping rates.

Above all, be very cautious if a vendor provides you with a form to sign to participate in your third-party freight program. Make sure you read the fine print. The more you know about pitfalls to watch out for, the better you will be able to negotiate contract terms that truly benefit your organization’s bottom line.

Questions about specific freight terms? Ask below and we’ll weigh in.