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.

Simply defined an LTL Broker is a non asset based (does not own or operate tractors & trailers) service company who has pricing agreements directly with LTL carriers and offers LTL pick up and delivery services through these carriers at a mark up. They bill you directly and then settle with the LTL carriers.

Using LTL Brokers as an alternative to dealing directly with an LTL carrier can in some cases provide the best LTL rates. That's what everyone wants...the world's best freight quote on every shipment, right? I am amazed at how much time and effort some small to medium sized companies spend daily in making several phone calls or accessing several web sites where they can shop their shipments for the cheapest possible discount freight quote du jour.

Far too many of these daily shoppers end up sub optimizing the competitiveness of the LTL quote they end up selecting. They are told or otherwise assume that the LTL Broker can offer a better freight price because they can use their collective volume of business to negotiate deeper pricing with the LTL carriers. This is true for the Mom & Pop shippers out there. Unfortunately a surprising number of those companies who spend hours browsing or calling for today's best discount freight quote greatly underestimate the power of their own collective volume of business when competently and professionally represented directly to the LTL carrier group.

A professionally negotiated "Core Carrier" LTL program tailored to client specific business rules and service requirements can generally deliver more competitive pricing than most LTL Brokers can offer to companies who ship as little as $30,000 to $50,000 a year or more in LTL shipments. A Core Carrier program reduces the number of LTL carriers, and properly utilizes and leverages all available inbound, outbound and third party LTL volumes. When these programs are backed up by the discipline of Route Guide implementation, Non Compliance reporting, and freight bill audit and payment services the payback is impressive. The payback can easily be measured by more competitive pricing and freeing up and redeploying  staff time spend burning up the net or dialing for dollars.

While LTL Brokers may have blanket pricing from the LTL carriers, that blanket pricing in combination with a mark up often is not your best discount freight option. The LTL carriers won't always give blanket pricing and when and if they do they are smart enough not to allow resellers to erode their client base by giving them deeply discounted pricing.

If you are dialing for dollars everyday you might want to consider contacting a transportation spend management firm who can design, deliver and implement a managed Core Carrier LTL program for you and support you in managing that program. Even after paying the management firm's fee, the savings in your LTL costs alone could be as much as 20% to 30% or more.

Negotiate, negotiate, negotiate, that's the mantra in today's freight shipping environment. True, it's currently a buyers market and most LTL carriers are willing to entertain a rate reduction in this, the worst freight recession most carriers have seen in a very long time. The effort to achieve discount freight rates with qualified LTL carriers who can meet or exceed service requirements is a balancing act that's been going on since deregulation. Unfortunately, many small to medium size companies and the personnel they charge with managing their freight spend have become one-trick ponies when it comes to exploring alternate means to achieve discount LTL freight rates for their domestic LTL distribution costs.

LTL carriers can only negotiate to a point. Having seen so many LTL carriers exit the market place with little or no warning, we all need to hope that those remaining LTL carriers will have sufficiently understood their internal operating costs to refrain from pricing themselves into extinction.

So you have completed your bid process and negotiated the LTL trucking carriers to their rock bottom freight rate, what's next? Some companies have seen a savings from putting a couple of 15,000 lb shipments together on a truckload carrier who will deliver both shipments en route. This methodology can be a great cost saver but for most companies who have a decent volume of LTL shipments it is underutilized and only the obvious opportunities, those that jump of the page, get looked at for freight consolidation.

LTL freight consolidation done right requires technology to master the countervailing intricacies of geography, due dates, trailer utilization, and the intersecting price points of LTL carrier rates and truckload carrier rates. Other factors such as driver hours of service availability, loading and unloading time and due dates need to be factored into a complex algorithm that ultimately produces good load planning that saves money and delivers on time. Effective freight consolidation can't be done on a piece of paper or by looking at a map.

We recently completed a project for a client shipping frozen product on pallets from Distribution Centers located in FL, OH and AZ. The client shipped 75% of their product as LTL and the balance shipped as full truckload, or where they could piece together a few larger shipments, as truckload with stop offs. We implemented our LTL freight consolidation or load optimization software for the client receiving multiple uploads daily from their order entry system. All orders carried a due date. In a matter of minutes the software calculated trip miles, driver hours, unloading times, trailer space utilization, LTL costs vs. truckload and stop off costs and a number of other parameters. The load planning provided by this software consolidated costly refrigerated LTL shipments into considerably less costly multiple stop truckloads that preserved the integrity of the due dates. After implementing this software the client's improved mode utilization mix sees them shipping 27% direct LTL, 5% full truckload and 68% truckload with stop offs. The average savings through load planning and LTL freight consolidation vs. direct LTL was 38%.

You won't find another 38% coming from further negotiations with LTL freight carriers. How much of your LTL carrier freight spend might lend itself to this application?

Learn about DSi's freight shipping services.

Surely the days of viewing freight shipping services and logistics costs as a fixed cost are behind us right? Key corporate decision makers who are tasked with the measurement and management of all line item expenses surely understand the impact of and cost reduction opportunities represented by freight savings and logistics related expenses, don't they? 

Believe it or not, even in the devastating economy we find ourselves in, most companies miss the boat completely on this critical area for improving corporate profitability. Many key financial players at the "C" and "V" level assume their companies are doing all they can to directly reduce and control costs associated with delivering their product to market and sourcing and delivering materials used in manufacturing their products. Having asked, "so what do you spend per year on transportation services?" countless times of the person or persons within a company who is/are charged with buying transportation services, the usual answer is " I don't know". The old, but spot on adage in our business is, "if you're not measuring it, you're not managing it". The best way to measure it is through a freight bill audit and freight bill payment service that can allocate costs down to the sku level and provide a wealth of data useful in managing costs and insuring proper pricing strategies for your product.

Transportation and logistics related costs as a percentage of sales range from 9% to 14% depending on industry sector for companies who do not adopt a ‘Best in Class' management approach. These percentage ranges include all logistics related expenses such as warehousing, dedicated personnel, and transportation expense. Transportation costs alone comprise the vast majority of this expense for most companies.

By adopting a ‘Best in Class' logistics management approach, logistics related costs as a percentage of sales drops to 4% to 7% depending on industry sector. That's a delta of 5% to 7%. For a company with sales of $10,000,000, that's a contribution to corporate profitability of $500,000 to $700,000. How many widgets do you have to sell to net that kind of return? Maybe it's time your company adopted a ‘Best in Class' management approach to your transportation and logistics costs.