Freight Shipping Blog

The concept and practices of Transportation Spend Management (TSM) have been taught in business schools for years. In reality it is a little used and understood discipline in most small to medium sized companies. With transportation spend approaching fifty (50%) percent of total logistics costs and logistics costs trending higher, many CFO's or other "C","V" level personnel are asking questions about transportation spend management within their organizations. More often then not the answers they receive to those questions indicate a missed opportunity to create competitive advantage and to improve profitability.

So, you might ask, "what's the upside of implementing a properly structured and executed TSM program and how do we achieve that upside?" For most companies it can return the following benefits:

1. Improved service and transportation broker responsiveness

2. Greater control, visibility and insight into direct costs

3. A twenty percent (20%) or more direct cost savings

Believe it or not, for many small to medium sized companies the first step is to determine what their annual transportation costs are. Most of these companies simply have not taken control of this expense, using far too many LTL trucking companies and other transportation brokers. They allow an undisciplined use of transportation brokers within their company and by their suppliers who dictate carrier usage even through they are paying the freight costs. 

Many companies who employ an effective transportation spend management program are assisted in that process by the use of a freight audit, and freight bill payment company. In utilizing the services of these companies all freight invoices are send for detailed freight bill audit, entry into a freight audit database, and for freight bill payment. Cost allocation for each freight invoice or individual component costs of each freight invoice can be accounted for by entering applicable company specific general ledger (GL) codes into the freight audit database.  GL codes can account for freight costs down to the SKU level, by customer, by direction, or any other of a number company specified parameters. The reporting, control and visibility gained from using freight bill audit, and freight bill payment companies can be a small investment in returning significant benefits. The costs of these services are nominal in relationship to their payback for most companies.

Most freight audit and payment companies can also assist in the control of transportation spend through the implementation of Routing Guides that specify exactly which carrier should be used for each individual transportation transaction. The Routing Guides are lodged with all suppliers who ship inbound freight collect and all company shipping locations who ship outbound freight prepaid. If the Routing Guides are not followed, lost savings or non compliance reporting can allow the company to charge back their suppliers or shipping department for any premium freight charges incurred as a result of their supplier's or shipping department's non compliance.

These are just a few ways a freight bill audit and freight bill payment company can help you implement an effective TSM program. It's your money, you need to take control of how it is spent.

Here are the five (5) basic questions you need to ask to determine if your company has an effective transportation spend management program in place:

1. Are we leveraging our total transportation spend when negotiating with carriers, or is our spend fragmented across departments, business units, or Logistics Service providers?

2. Are we engaged with the right set of carriers, or are there other carriers that can meet our service level expectations at a lower cost?

3. Are we consistently using contracted carriers and paying contracted rates, or is there a lot of "maverick" spend taking place?

4. Are we being invoiced correctly, or are we paying too much? What's the cost of our freight settlement process and can we streamline it?

5. Are our transportation costs aligned with the rest of the market, or are we paying more or less than other companies?

(Source- five questions) : ARC Advisory Group

How many times have you ordered something really cool on line and just before checking out you check out the shipping options? "Hmmm..., I can get it in 3 to 5 days for $15.00, but I can have it tomorrow for $26.25, oh what the h..., I'm springing for the premium freight charge!" In my younger years my Mother always accused me of needing "instant gratification". Maybe that's just part of the psyche of the boomer generation, but we see more and more expedited freight requirements coming through our system daily. I suspect it has less to do with 'really cool' stuff and more to do with less than optimum inventory and manufacturing  planning. As a nation we want things to move quickly and we want what we want sooner rather than latter. We want it fast, and this includes fast freight! "I don't care what it costs, its got to be there Friday morning"; that's music to a lot of carrier's ears in the air freight forwarding, or ground expedite business.

So what really is the cost of all this expediting? Is there a typical markup as a percentage from 'standard service' to 'premium service'? Is everybody in customer service or shipping authorized to select expedited shipping options? How do we manage expedited shipping services to make sure we're not paying more than we should be?

The right answers to these questions for most small to medium sized companies could significantly impact the monthly P&L statements. The fact is for many companies premium or expedited freight shipping is a wild card. They might rely on one or two spot market expediters, and the more they lean on the panic button the more their costs escalate.

We generally define domestic expedited freight as any shipment that requires delivery earlier than standard service. Standard service of course would be normal surface LTL published transit time, which is specific to the LTL carrier you use. Most of the LTL carriers have service upgrades that are available at roughly a 20% to 30% uplift from their standard service. In some cases where the service requirement is upgraded after the shipment leaves the dock, these "in-system" upgrades may be your best option, but not always. There are times when the in-system options cannot achieve your required delivery date and time. In those situations the shipment has to be "rescued" and recovered by another expediter from the LTL trucking carrier's system.

So what are your options to manage your expedited freight requirements in the most cost effective manner that protects your due dates and times? Domestic expedited shipping service options usually include:

• Surface expedite-team drivers or exclusive use trips
• Surface LTL shipments ran as Truckload
• Air Freight Forwarders (non asset based brokers/forwarders)
• Air Freight Lines (asset based operators- UPS/Fedx etc)
• Air Charter Brokers (non asset based dedicated flight brokers)
• Air Charter Lines (asset based dedicated flight operators)

Determining which of these options is best suited and best priced for your expedited shipping requirements can be a complex decision process. That process involves factors such as: weight, dimensions, ship date and time, protect delivery date and time and the mileage of the trip.

The bad news in all of this is that unless you expedite regularly and have established rates it can take a lot of time and telephone calls to find the best cost and service option to meet the need. So much time that many companies often throw up their hands and say, "just find me someone who can get it there on time. It's got to be there, I don't care what it costs".

The good news in all of this is that there are a number of excellant on- line decision support systems that can successfully leverage and manage your expedited freight for optimum cost and service in a real time environment.

Some companies have regular and consistent expedited requirements for which a negotiated solution is in place. If your company is not in that category on-line help is probably the best bet to successfully manage your expedited shipping.