Carrier costing models have evolved over the past couple of decades. Freight rates are based on the complete set of transportation-related processes at origin, in transit, and at destination, to serve each client. To effectively manage freight expenses, shippers must have a full understanding of all three elements.

Shippers with weak shipping order procedures and staging processes drive up the cost of freight transportation. Shipments that move at peak times, in congested areas, to remote areas, or on circuitous routes, drive up the cost of freight transportation. Consignees that disrupt or slow down the delivery process, that consistently extend a delivery beyond standard Hours of Service, that charge fines for late deliveries, have a significant negative impact on the financials of the shipper. What takes place during the pick-up and loading process is only part of the expense of moving freight in a cost-effective way. One of the biggest mistakes a shipper can make is to think that after they have selected high quality carriers, negotiated competitive freight rates, and trained their carriers on how to load their freight, their job is done. It isn’t.

The world of freight has changed. Hours of Service regulations coupled with the ELD implementation have increased the focus on driving and delivery windows. Strong economic conditions have created capacity shortages. Driver shortages have made capacity even tighter as carriers have had to park equipment across North America. Shippers and consignees with ineffective pick-up and delivery processes can increase the number of transit days beyond previous norms and raise costs. Shippers with chronically inefficient processes have been facing not only higher rates, but also a shortage of capacity. This can jeopardize customer retention, revenues and profits. What can shippers do to prevent this from happening?

Gain an Understanding of the Three Components of Freight Transportation for your Business

Those of us who came into the freight transportation industry in the 80s and 90s remember when there were distinct sets of service providers. There were small parcel carriers, LTL carriers, full truckload service providers and rail carload operators. Of course, during slow times, truckload carriers would move some large LTL shipments. The small parcel carriers targeted shipments in the low end of the LTL freight sector. Even back in the 80s. truckload consolidations (of multiple LTL shipments) were popular in certain industry segments (i.e. auto parts). However, these four labels were a pretty good reflection of the major types of transportation services available at that time. Companies in each of these segments had a unique core competence and tended to operate in their area of expertise.

Today, Transport Topics and other journals still publish lists of the top 100 truckload carriers and top 50 LTL carriers. However, when you examine the business activities of a number of companies in each sector, you realize that these labels no longer fit well with the diversity of services that many trucking companies currently provide.

As an example, JB Hunt has been known for years as one of the premier truckload carriers in North America. At one point in time, this was a very accurate description of this company. However, when you examine the revenue of this company, over-the-road truckload freight now represents only five percent of the total. Through a focused business strategy and organic growth, intermodal transportation, dedicated fleet movements and freight management now make up the bulk of their business.

XPO Logistics, through their acquisition of Conway, has $3.6 billion in LTL revenues and now ranks third in the rankings of LTL carriers. This company, well known for its large logistics operation, now has a strong presence in two of the major sectors of the freight transportation industry.

In my last blog, I identified one of the recurring problems we encounter in working with shippers on a day to day basis, namely a lack of complete and accurate information on their freight transportation activities and expenses. I would argue that “you cannot manage what you cannot measure.” Good quality freight data is an essential component in the management of freight transportation.

Detailed, quality freight spend data can allow shippers to identify consolidation opportunities, to address chronic operational inefficiencies that result in excess or accessorial costs, to highlight “maverick” spend (e.g. higher cost carriers being used that are not listed in routing guide), to rectify the use of non-core carriers or more expensive modes and/or to create opportunities to construct more efficient routes and round trips. Shippers with poor quality and/or inaccurate freight cost data place themselves in a vulnerable position. Here are some steps that shippers can take to address this shortcoming and improve their profitability.

1. Build a Quality Freight Spend Data Base

For the past 15 years, my colleagues and I have been working with shippers throughout North America to help them save money on freight transportation. In 2018, this cost has hit the radar screens of CEOs, as the tightness in freight capacity has placed upward pressure on freight rates. Many shippers have been experiencing rate increases in the high single digits and even double digits. Some CEOs have been highlighting the impact of freight costs during their quarterly investor calls and earnings reports.

A company’s freight costs often represent between two and ten percent of total revenues. For many companies in the manufacturing, distribution and retail sectors, their expenditures on freight have a direct and significant impact on their companies’ bottom lines.

Twelve years ago, I wrote a blog on this topic. In that blog, I identified one of the consistent problems we encounter in working with shippers on a day to day basis, namely a lack of complete and accurate information on their freight transportation activities. Twelve years later, this problem persists, and it is not limited to small companies. In fact, many companies with freight expenditures of five to fifty million dollars or more face the same problem.

“You can’t manage what you cannot measure.” Good quality freight data is an essential starting point in the management of freight transportation.

Under the Federal Motor Carrier Safety Administration rules in the United States, that came into effect on Dec. 18, 2017, most trucks built after 2000 had to be equipped with an ELD (Electronic Logging Device). Fleets already using older electronic onboard recorders are grandfathered until December 2019.

The CCMTA (Canadian Council of Motor Transport Administrators) is coming forward with a Canadian ELD Mandate proposal. The Canadian ELD rules will closely mirror the US mandate to keep cross-border regulations consistent.

Regardless of when the Canadian government publishes the final rule on ELDs, which will likely be within the next year, any driver operating a commercial motor vehicle south of the border is already required to follow U.S. Hours of Service rules and regulations. Canadian carriers that make cross-border deliveries were also required to have an ELD solution by the December 2017 deadline.