As a smart shipper, fattening up your bottom line also means knowing how to manage freight costs and increase shipping efficiencies with the help of practical strategies.
Costs Associated with Managing Freight
Every business is different, yet the most costly element associated with managing freight costs often tends to be the cost of the transportation itself. Realizing a better bottom line is not just negotiating better terms, but requires strengthening relationships and understanding the intricacies of the transportation and logistics systems themselves.
High-impact factors within the transportation industry include managing fuel, driver salaries, and equipment costs. Plus there are costs associated with packaging, warehousing, handling fees, as well as customs and import/export fees.
Overall, the total cost of managing freight will depend on a number of factors unique to your business – mainly the type of goods being shipped, the distance they are traveling, and the level of service required.
In this article, we will explore how a 3PL company can assist businesses in controlling freight costs. Some methods may be as obvious as shipping during off-peak hours, others require a better understanding of the components and common factors that drive up freight costs.
The following strategies provide insight into how to manage freight costs to help improve your transportation’s bottom line.
Strategies That Cut Shipping Costs
1. Perform an In-Depth Cost Analysis
When working with carriers, it’s important to clearly define what you need from them in order to make a comparison between their quotes.
For example, instead of simply asking for a standard rate and tariff format, specify the type of rate you need (e.g. kilogram rate, tonnage rate, pallet rate) and ask for quotes for different quantities (e.g. 1-5 pallets, 6-10 pallets).
By requiring all carriers to provide quotes in the same format, it will be easier to compare and understand which carrier is offering the best service and prices.
2. Define Your Freight Rate Structure
When it comes to freight rates and pricing structures, it’s important to make sure you’re paying the right rate for your specific needs.
For example, if you’re paying an hourly rate for deliveries, literally being on the clock might not necessarily encourage the transport company to make your deliveries efficiently.
It’s important to consider the rate structure, whether it’s per ton, per pallet, per carton, and ensure that it aligns with your freight profile. If it doesn’t, it might be worth reevaluating and potentially renegotiating the structure.
3. Recalibrate the Speed of Your Shipping Methods
When it comes to shipping and the premiums attached to speed, it’s important to make sure you’re not overusing faster methods like air or express freight when regular road freight would do. Take a look at your invoices and see which shipping speeds you’re paying for and make sure they’re appropriate. Often, people will book a higher priority than necessary.
Also, consider the different speeds of shipping methods and ask yourself if air freight is necessary for the entire shipping distance. For example, it might be more cost-effective to use air for a portion of the route and ocean transport for the rest, or vice versa.
4. Develop Relationships with Carriers
When shippers establish long-term relationships with carriers, they gain insight into transportation management that can have a real impact on the bottom line.
Long-term contracts allow carriers to optimize their resources and create more efficient networks with minimal deadhead miles. Carriers that are maximizing their assets are more profitable and can offer better rates. Plus, locking in a rate for a longer term, such as a number of years, means no annual rate changes and an overall better service.
5. Ship on Off-peak Days
Shipping on off-peak days can lead to some significant savings. For example, Fridays tend to be quieter days for shipping consumer goods as most retailers aim to have their products on shelves by the weekend. Similarly, Mondays tend to be less busy for carriers, so they may be more open to negotiating rates.
Of course, this may vary depending on the type of goods you’re shipping – for example, non-perishable goods may have more flexibility when it comes to shipping days than perishable goods. However, coordinating your freight shipments to take advantage of off-peak days is a great option for shippers of non-consumer products.
6. Offer Later Pick-up Times
Offering later pick-up times can be a great way to shave overhead costs in shipping. For example, by allowing carriers to pick up your freight after most other shippers have closed for the day, like between 6-12 p.m., you’re giving them the opportunity to make your load into a backhaul.
This means that they can fill their truck with your freight after completing another delivery, instead of having to make a separate trip. It’s a win-win situation, as it helps the carrier maximize their assets and save you expense. Just keep in mind that it depends on the cargo and the carrier’s schedule.
7. Bundle Your Shipments
Bundling shipments is a great way to drive down shipping costs; combining multiple orders into one shipment can save a significant amount of money. Instead of shipping a few pallets at a time, try to bundle them together into a larger shipment.
One way to encourage customers to bundle their orders is to offer them a discount on shipping costs. Another option is to implement Vendor Managed Inventory, where the retailer only pays for items once they are on the shelf, which may encourage them to take larger orders.
8. Maximize Your Carrier Capacity
Consider the ways in which you are packaging and presenting your freight to carriers. By making adjustments to loading and handling processes, you can help the carrier maximize the capacity of their vehicles and potentially reduce your costs.
For example, if you’re shipping fragile products that require individual pallets, you will be paying for unnecessary space in the carrier’s vehicle. Additionally, think about the overall design of your pallets, ensure they’re evenly packed to allow for efficient stacking.
9. Minimize LTL Shipments
Because LTL shipments operate on a piecemeal basis, less-than-truckload shipments drive up your freight costs.
Ways you can reduce LTL shipments include:
- Using logistics software make your full-truckload shipping frequency more efficient
- Work with carriers that offer load consolidation
- Offer incentives to freelance LTL carriers who offer better freight rates
10. Join forces with Other Shippers
Collaborate with other businesses near your regular distribution centers to bundle your shipments with theirs. This approach is even more advantageous if the companies are local and have a shared customer base.
11. Reduce Dunnage
Consider working with carriers to minimize unnecessary packaging and reduce shipping expenses without compromising product safety. Utilize carrier’s dimensional weight pricing plans that incentivize using the appropriate size packaging, reducing weight and packaging materials.
12. Increase Delivery Lead Times
By planning your supply chain needs and providing carriers with ample advance notice for future loads, you can help them optimize their resources and assets. Advance shipping notice allows carriers to align their trucks, drivers, and warehouse space to ensure efficient transportation.
One of the biggest costs for carriers is the idle time of trailers waiting to be loaded. By improving planning, communication and providing longer notice, carriers can reduce these costs and offer you more competitive rates. This also applies to all aspects of the supply chain, including pick-up, staging, and live-loading.
13. Contract for Steady Lane Freight Volume
Establishing a consistent and reliable shipping schedule with a carrier can lead to cost savings. Carriers can market unused capacity on their return trips and build a more efficient network when they know they will receive a steady flow of freight in the same lanes from you.
Additionally, in today’s market with limited capacity, carriers tend to prioritize the freight of shippers who are loyal and have dependable shipping volume.
14. Load Your Freight Quickly and On Time
Carriers typically develop their pricing based on a 2-hour load window. If the carrier knows they’re cutting their load time in half when picking up cargo at your facility, that’s an incentive to drop the price, and good reason to continue at a discount.
A shipper with a reputation for being efficient not only saves time and resources attributed to extra charges, but has carriers waiting and willing to negotiate better rates.
15. Find Carriers for Backhauls from Ship-to Points
Carriers that can fill space by backhauling from your ship-to points will get you a lower rate. Dead-heading costs them time and money. You can help them alleviate empty mileage and at the same time reduce your own freight costs.
Therefor it’s worthwhile investigating carrier terminals near your ship-to locations and endpoints.
16. Outsource your transportation department
Freight management for smaller companies especially is top-heavy. For many, the overhead in staffing and systems necessary to operate a transportation department is simply beyond their means.
By outsourcing the many facets of freight management to an experienced and efficient 3pl provider, the financial stresses of staffing and capital expenses are offloaded allowing the company to grow and innovate.
Reasons for Controlling Freight and Shipping Costs
Controlling freight costs is crucial, especially for small businesses, for several reasons:
- Financial Impact: Freight costs can be a significant expense for small businesses, and if not managed properly, they can quickly eat into the company’s bottom line. By controlling freight costs, small businesses can free up funds for other important expenses, such as marketing and product development.
- Competitive Advantage: Small businesses often operate in highly competitive markets, and controlling freight costs can give them an edge over their competitors. By keeping freight costs low, small businesses can offer their products at more competitive prices, which can help them attract and retain customers.
- Cash Flow Management: Small businesses often have limited resources and rely heavily on cash flow. By controlling freight costs, businesses can better predict and manage their cash flow, which can help them avoid financial difficulties.
- Improved Inventory Management: By reducing freight costs, businesses can reduce the amount of inventory they need to carry, which can free up space, reduce carrying costs and improve cash flow.
- Better Customer Service: Businesses can improve their customer service by controlling their freight costs, as they can offer more flexible shipping options and faster delivery times. This can lead to increased customer satisfaction and loyalty.
Final Thoughts on Managing the Costs of Freight and Shipping
“I never predict freight rates; nobody can do that.”
Soren Skou CEO A.P. Moller-Maersk
For the short term that’s a fair statement. But a more significant observation involves the question, “Are future costs going to go up or down?” The answer is obvious.
Just as rates are expected to rise with inflationary pressures and demand, the same evolutionary predictions should be exercised when managing freight costs. Therefor, periodically evaluating and reevaluating your company’s position on transportation costs is an ongoing process; a critical facet of the jewel that is your company.
Need help managing your freight or shipping needs? Brimich Logistics is here to offer customized solutions guaranteed to move your company forward – contact us today!