The subject of rising freight transportation costs has come up on the earnings calls and quarterly reports of almost every publicly traded manufacturer and retailer in 2018. This has been a very challenging year as many transportation expense budgets were shattered by a host of variables including a driver shortage, the ELD mandate and a surging economy.

The financial impact of rapidly rising freight costs caught large numbers of CEOs and CFOs by surprise. Many companies were unprepared for the capacity challenges and financial impacts that took place. Freight transportation expenses are typically in the range of 1 to 5% of sales. This changed in 2018. Suddenly the team that oversees these expenses, and the processes they manage, came under more scrutiny than ever before.

Economists are predicting solid economic growth in 2019 but not quite at the pace of 2018. What can CEOs do to protect their supply chains, the service to their customers, and their profits from further freight cost shock treatments in 2019? Here is a checklist to consider.

1. Eliminate Inefficient and Wasteful Practices

Some large LTL carriers have announced rates increases this fall. Old Dominion, XPO Logistics, YRC Freight and UPS Freight have all declared 4.9 percent GRI rate increases on non-contract LTL freight that took effect in September. In survey after survey, shippers have claimed that cross reductions are their number one priority. How can these two conflicting strategies be resolved?

It is important for LTL shippers to realize that LTL carriers are serious about making these increases stick. Despite somewhat muted demand for LTL service, carriers are making a determined effort to secure these increases.

One of the major reasons for the focus and discipline is balanced capacity. Most of the large LTL carriers shrank their networks considerably in the aftermath of the 2008-09 recession. As a result, there’s not a lot, if any, excess LTL capacity. Yield management is the priority this year. With limited capacity, there is little value in triggering a price war. A race to the bottom does little to help carriers raise their margins. LTL carriers are looking at their margins per lane and per account and taking action on contracted and non-contracted freight to improve yields. What can shippers do to mitigate these GRI increases?

For companies that have significant volumes of freight, they can put their business out for bid, leverage their volumes and sign multi-year contracts with minimal rate increases in subsequent years. There are a number of Best Practices that can be employed to make your freight bid a productive process (http://www.dantranscon.com/index.php/blog/entry/freight-bid-tip-1-obtain-buy-in-and-participation-from-the-operating-divisions ). For shippers that routinely do this on an annual or bi-annual basis, there are other avenues to pursue.

Once you gather the necessary data outlined in the previous blog (http://www.dantranscon.com/index.php/blog?view=entry&id=229 ), it is time to take action. Here is a set of steps to follow to save money on accessorial charges.

Set up a cross-functional team

As you will realize when you review your research notes, it will often take a number of parties (sales, production, and warehouse management) plus the customer in many cases and your carriers to address how to reduce accessorial charges. Once you assemble your cross-functional team, have a meeting to share and discuss your findings and create cost saving targets, action plans, persons accountable and timelines.

Create a report to track success on a monthly basis. Share the report with key stakeholders and follow up with any stakeholder who does not fulfill his/her responsibilities.

A couple of weeks ago, I wrote a blog about the new pricing processes that LTL (and small parcel) carriers are employing to improve the profitability of their operations. I noted that freight carriers are emulating some of the activities that have been undertaken by the airlines such as dynamic pricing (i.e. adjusting rates based on time of day and day of the week) to increase yields on their freight activities.

Similar to the airlines, in recent years, LTL carriers have become more focused and aggressive in seeking payment for additional services (that have distinctive cost elements) that have been offered at no charge or at less than full cost recovery in the past. Many carriers have been focusing on inefficient shipper practices or administratively costly tasks that drive up their costs. They have been turning to their customers to compensate them.

In this blog, I will provide a set of questions that shippers should ask themselves and their customers to understand the current shipping processes that are precipitating accessorial charges and the costs that are being incurred. In the next blog, I will provide some general practices that shippers can employ to mitigate these costs.

Why do Accessorial Charges Exist?

Here are few statistics to consider. On June 27, 2014 a barrel of crude oil cost $107.26 U.S. On the same date, a gallon of diesel fuel cost $3.91 in the U.S. or $1.35 per liter in Canada. The cross-border (Canada/U.S.) fuel surcharge was 20.1 percent on LTL, 47 percent on truckload.

Last week, the price per barrel dropped to $50 while the price of diesel fuel fell to $3.13 in the U.S and $1.18 per liter in Canada. The cross-border fuel surcharge fell to 13.4 percent on LTL and 31.6 percent on truckload. This week the cost per barrel is trending below $50. The cost per barrel has dropped by over fifty percent in the past six months. In the same period, fuel surcharges have declined by about a third. Here are few thoughts that shippers need to keep in mind.

1. Shippers will receive a freight cost saving windfall in 2015

An energy expert suggested this week in Forbes magazine that we may see the cost of a barrel of diesel fuel fall to as low as $20 this year. While no one knows what the bottom is or how long energy costs will remain at these levels, the end result will be an unexpected cost saving bonanza for shippers. Enjoy it as long as it lasts.

2. What comes down will go up