When freight rate bids are yielding diminishing returns on savings, you’ve probably exhausted all the savings you’re going to derive from competition among carriers and transportation companies. At some point the carriers have gone as low as they can with their freight rates. So what now?
You have to take cost out of the system. This is harder. You have to work at it. Not only do you have to work with the carriers and transportation providers, but you also have to work with internal people to realize savings. Not every solution is applicable to every shipper, but here’s a guide to point you in the right direction to analyse your shipping activities.
Become a Shipper of Choice:
Reducing uncertainty for carriers can result in cost savings because the carrier doesn’t have to guess at what costs they may incur. To become a shipper of choice consider the following
- Prompt Loading/Unloading: Appointment times are great and generally speed up unloading, but you should also have a mechanism to deal with the occasional late carrier. If the carrier misses their window and has to wait 6 hours to get unloaded this will eventually factor into your cost of freight.
- Comfortable, Friendly Atmosphere for Drivers: Many shippers don’t consider the impact their facility has on their cost of freight. Drivers like to pick up at locations where they are treated with respect and loaded/unloaded promptly. Typically, runs are doled out to drivers based on seniority. The best, most experienced drivers want to pick up at the best shipping locations. The best, most experienced drivers make fewer errors and will pick up and deliver promptly — driving down your costs in the long run.
- Re-consider Fines: There are lots of elements of uncertainty for a carrier when he is bidding on freight. Many of which are out of his control like weather, traffic, and random breakdowns. If you add a fine to the scenario, the carrier now has to add this to his costs. Fines in the long run are paid by the shipper in their rates.
Break Out Assessorial Charges:
Uncertainty only increases costs. When the carrier has to guess, prices go up. For example, let’s say your tender says, “price all inclusive with fuel”. Now the carrier has to guess at what the fuel price is going to be 12 months from now. He’s going to guess high so he doesn’t lose his shirt in the deal. Who knows, if fuel has a huge spike, you may come out ahead, but more likely you, on average, are going to pay a higher “all in” price. Develop a fair fuel surcharge table, standardize and have it fluctuate with the price of fuel. It’s just like a mortgage for your house. In the long run, people who have variable rate mortgages pay far less than people who lock in a rate. This is the cost of uncertainty being factored into the price.
Share information:
Again, uncertainty equals cost in your freight rates. If the carrier doesn’t know exactly how long your freight takes to load and/or unload, he has to guess. Also, timing and frequency play important roles. For example a carrier may need a PM pick up to work with a nearby AM delivery in order to have a low cost solution by matching a head haul with a back haul.
Share the cost of the unexpected:
Border delays, production delays, weather, traffic, etc. all turn into costs for the carrier. These costs have to be factored into rates. It’s much like comprehensive insurance coverage on your car. If you have zero deductible, the rates are very high. However, if you share the cost of any unexpected occurrences with your insurance provider and bump up your deductible to $500, your rates are significantly reduced. A carrier who knows a shipper is reasonable to deal with around delays and unexpected events will get lower costs in the long run.
Consider a 3PL Logistics Company
Working with and managing a large carrier base takes time and effort. If you have multiple priorities and responsibilities and never seem to have the time to work on the areas above where savings can be realized, perhaps it’s time to consider outsourcing. For 25 years DSN Chemical Transportation has worked with customers to develop cost-effective solutions which include appropriate aspects of the above best practices. We would welcome the opportunity to review your existing supply chain challenges and do the same for you. Contact us any time for a no-obligation consultation.