Shippers – “You don’t get what you deserve, you get what you negotiate”

This year, major freight carriers have been seeking general rate (GRI) increases, higher fuel surcharges (at a time when energy prices are at their lowest levels in years), accessorial charge rate hikes and the implementation of dimensional LTL pricing. In other words, shippers, particularly in the small parcel and LTL sectors are facing a barrage of rate increases in 2015.

This brought to mind some words of wisdom I heard from Jerry Hempstead, President of Hempstead Consulting during the Logistics Management 2015 Rate Outlook webinar. Jerry made the comment that when it comes to freight rates, shippers “don’t get what they deserve, they get what they negotiate.” This sage advice has stayed with me since the call and is the inspiration for this blog. Here are a few thoughts to consider.

Data is Power

Shippers without good freight data are virtually defenseless in rate discussions. If you don’t have accurate data on the density of your freight, you are at the mercy of freight companies, their scales and dimensioning devices. If you don’t have quality data on your volumes by lane and on the various components (e.g. line haul charges, fuel surcharge, accessorial charges) of your freight spend, you are not able to able to manage your freight and communicate effectively with your carriers.

Improve the Density of your Freight

The packaging of your products is now more important than ever. With LTL carriers increasing their investments in dimensional scanners, shippers will now pay the price for poorly designed packaging. Good packaging protects a shipper’s products from damage while containing a minimum of air.  In other words, your freight should take up the minimum amount of cubic space in carriers’ trailers or containers, thereby restraining freight costs.

Volumes Provide Leverage

Motor carriers are looking for freight volumes in specific geographic areas. Volume means leverage. Shippers with a $10 million spend will typically command better freight rates than those with $1 million or $100K in freight costs. Manufacturers and retailers with lower volumes need to be creative in leveraging their volumes. Consolidating shipments on designated days of the week increases the size of shipments while reducing the number of pick-ups and accordingly the rates. Sharing trailer space with a sister company, another division or even a competitor, can also help reduce freight costs. To maximize leverage, select a group of core carriers and give them the preponderance of your freight.

Being “Carrier Friendly” Increases the Attractiveness of your Freight

Motor carriers are seeking freight that is easy to pick up, easy to load and is not susceptible to damage. Freight costs increase when the carrier has to wait to make its pick-ups, to receive its bills of lading or has to make multiple pick-ups from the same location on the same day. Costs also increase when trailers are left sitting in the shipper’s yard for extended periods without being used.

Everything is Negotiable

Having worked on the carrier side of the industry for many years and having conducted numerous RFP exercises, everything is negotiable. Freight rates, fuel surcharges and accessorial charges are all subject to negotiation. The old saying, “he who has himself for a lawyer has a fool for a lawyer” applies equally to freight rate negotiations. If you are not comfortable or lack experience in freight rate negotiations, contact a professional.

Get your Freight Rates under Contract

Without contracts, carriers are free to raise rates when convenient for them. As the economies of North America strengthen and with tight capacity, once can expect to see one or more GRI increases in at least the mid-single digits or higher. Of course, with scanners and rising fuel surcharges, the total impact of freight rate increases can be much higher. Think about negotiating and signing multi-year agreements with your core carriers. This will send these companies a message that you are making a commitment to them.

If you take these steps, you will be able to negotiate and sign agreements that will provide your company with trucks, drivers and rate certainty. This will ensure your company receives the freight rates that it deserves.

To stay up to date on Freight Management Best Practices, join our group on LinkedIn.  If you need help in managing your freight costs, contact dan@dantranscon.com.