Top 5 Areas to Focus on When Minimizing Transportation Freight Costs
The single largest logistics cost component in a supply chain are freight expenses. Transportation conditions continue to become increasingly challenging driving up costs. Are you doing everything to control your freight costs? Here are 5 essential items to consider.
- The aging driver base is beginning to retire while millennials seek more glamorous professions; which will only worsen the driver shortage.
- More stringent government regulations are adding to carrier expenses.
- Fuel costs continue to remain unpredictable with swings as high as 50 cents per gallon in the last 6-8 months and 1 dollar in the last 2 years.
- Demand is outpacing available capacity.
- Carriers are able to be more selective in the type of shipper they do business with.
To help combat these challenges shippers need to place strategic focus on the following 5 areas. 1) Maximizing container and truckload cube and/or weight utilization. 2) Centralize transportation procurement. 3) Get control of inbound freight. 4) Become a carrier-friendly shipper. 5) Utilize a transportation management system (TMS).
1. Maximizing container and truckload cube and/or weight utilization
Truckload and container shipments generally are fixed rate for the linehaul from point A to point B and a flat rate charge for additional stops. Shipper should take full advantage of this by ensuring the trailer is fully cubed or max allowable weight is reached. This holds true for multi-stop shipments as well.
When utilizing LTL (Less Than Truckload) it is important to understand the details of the LTL carriers pricing. Many LTL carriers have adopted dimensional weight costing that considers the cubic volume and weight to derive the price. The density or pound per cubic foot that a shipment occupies on a trailer will be the key component in determining the cost of a shipment. Shippers should also look to take advantage of economies of scale where possible. Consider utilizing consolidation/deconsolidation points, zone skipping, mode and lane shifting to help lower costs.
2. Centralize transportation procurement
Companies can more effectively gain control, visibility, and leverage of a transportation network and spend by centralizing transportation procurement functions. While decentralized procurement teams typically deliver positive results at the site, region, or business unit level, their effectiveness is limited when it comes to an enterprise-wide approach to the complete transportation network cost. A centralized procurement team should evaluate, qualify, and select service providers that deliver the best overall value in terms of value, service and price. Other advantages to having centralized procurement – standardization of contracts, acceptable accessorials and carrier measurement (KPI’s). It also fosters relationships at a senior level between shipper and carrier.
3. Get control of inbound freight
For years, many companies have overlooked inbound freight cost. Shippers must unbundle the actual cost of freight from the unit price to determine if the price is competitive compared to market rates in that lane. The analysis should not take too much time but taking over control of the inbound freight does create some challenges and should be closely coordinated with both the shipper and consignee. When you take over inbound freight you are taking over responsibility for scheduling pick up appointment at the origin location and managing the carrier’s adherence to appointments, as well as any other carrier related issue.
While performing the analysis, also consider how the inbound freight fits in with your existing transportation network. Are there opportunities for backhaul with existing carrier or the opportunity to lower your carrier rate by committing more loads to them? These items can often end up being the deciding factor.
4. Become a carrier-friendly shipper
With demand outpacing available capacity and the increasing driver shortage, carriers have moved toward a position of power in the relationship. Therefore, it is important to be considered a carrier-friendly shipper. Shippers traditionally gave carriers scorecards to measure carrier performance but it is becoming more common for a carrier to give shippers a scorecard to show them how their inefficiencies directly affect the carrier’s productivity. Carriers are now measuring items like:
- Dock wait time
- Load and unload times
- Appointment time flexibility
- Drop and Hook program support
- Driver lounges and break areas
- Payment terms and adherence to terms
- Packaging and freight type
Acquiring and maintaining the designation as a carrier-friendly shipper is becoming a necessity and shippers must change to make themselves as attractive to carriers as possible.
5. Utilize a transportation management system (TMS)
Any shipper that is spending more than $300,000 annually on transportation would likely benefit from implementing a TMS. This is truer this year than the last 2 of 3 given the flood of low cost cloud based solutions on the market.
A TMS can help you with many of the items discussed above including maximizing container and truckload cube and weight by consolidating multiple PO’s/orders into an optimal shipment plan and managing inbound freight. In addition, building the most cost effective and efficient routes while considering appointment times, driver hours, dock appointment and load/unload times and provide near real-time visibility to shipments.
Reducing freight costs is often the primary objective in transitioning to a TMS, but there are other benefits such as replacing or automating manual and inefficient processes.
Shippers should strongly consider how their organization is addressing the 5 items above if they desire to stave off large freight increases and reduce freight costs. According to the Tender Reject Index (TRI), approximately 25% of all loads in the Atlanta area were rejected by carriers the last week in March, 2018. Nashville, Jacksonville and many other key cities saw similar trends. The market conditions continue to move in the carriers’ favor while shippers will continue to experience rising costs and capacity issues. Shippers need to be proactive to minimize the impact this will have on their businesses.
Tony Wayda is the Principal Logistics Consulting at SCApath and specializes in transportation software development and implementations; utilizing the latest technology to create strategic advantages, cut costs, and increase productivity for large retailers. Contact us to learn more.