Follow us on Twitter!
Blog Header Logo
DG&A's Transportation Consulting Blog
Subscribe to this list via RSS Blog posts tagged in freight cost savings

 

b2ap3_thumbnail_dreamstime_xl_49290215.jpg

One of the most frequent complaints I hear from carriers, in person, on social media, or at conferences, is about the number and quality of freight bids that they receive. Carriers complain about the poor quality of the data, the number of carriers in the bid, and about the lack of professionalism in the bid process. They also assert that if the shipper would just meet with them face to face, rather than through a bid process, the result would be more successful for both parties and would take a lot less time, money and effort.

My company has designed and executed many successful bids over the past fourteen years. We have learned that for many shippers, success comes from getting “your house in order” before executing the bid. This is what is involved.

Many shippers have been moving the same freight, to the same consignees, using the same processes, for several years. In their haste to put their freight out for bid, they overlook certain aspects of their business.

...
Hits: 192
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_xl_25132814.jpg

The Basics

Freight Transportation is typically the single largest cost component of Supply Chain Management. Data from Logistics Management’s Annual Study of Logistics and Transportation Trends highlights that an average transportation spend is in the range of 10 to 11 percent of revenue for companies with less than $250 million in Sales and it is in the range of 2 to 3 percent for companies with revenues in excess of $9 billion. As a result, my colleagues and I are often amazed that freight expenses are undermanaged in so many companies.

Freight Expenses are Controllable, Manageable and Negotiable Costs

Regardless of mode, freight costs are typically comprised of three elements

...
Hits: 334
0
Continue reading 0 Comments

 

b2ap3_thumbnail_dreamstime_xl_80751018v2.jpg

As we enter a New Year, many people create a set of resolutions to burn off a few pounds, to quit smoking or to achieve whatever goals are meaningful to them. On a professional level, this is a time for smart shippers to set in motion a series of resolutions to improve their company’s freight operations and their personal career trajectory. Here are a few to consider.

1. Follow the Donald . . . closely

President-elect Trump has promised to make a number of changes to both the domestic economic situation in the United States and to the current world order. As an individual who campaigned as an “outsider,” Donald Trump threatens to upend a range of current business practices. Keep a close eye on his trade policies, his efforts to boost manufacturing jobs in America, his government spending programs, his policies on climate change and on infrastructure spending. Initiatives in these areas would have an impact the flow of goods and services, on economic growth and on freight transportation.

...
Hits: 265
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_xl_27385956.jpg

The first blog in this series looked at the money saving opportunities for organizations that take control of Inbound Transportation. This blog will outline a series of steps that need to be taken to make this happen.

A Commitment to Act

In the last blog, it was highlighted that some vendors place a mark-up on their outbound freight costs (viz. your company’s inbound freight expenses) and pass it on to their customers. It is important for every company that receives inbound freight to understand the following.

A trucking company adds a mark-up to their costs in order to come up with their freight rates. A freight broker and/or logistics service provider will take the carrier’s rate and add another mark-up. In other words, by the time you receive shipments from your vendors, they may have from two to four mark-ups added to the basic cost.

...
Hits: 340
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_xl_9421932.jpgManaging Inbound Freight is often overlooked or not optimally managed as an opportunity for cost savings in many companies. This is a conclusion we have come to after working with a range of companies and industries over the past 13 years. When we are invited to meet with a manufacturer or distributor of freight, the priority is usually finding cost savings on outbound freight, not inbound freight. This seems to be the result of several factors.

First, many companies are not able to determine how much they are paying for inbound freight. Freight costs are often embedded in the “landed cost” of the products; the actual freight cost component is not identified. Many companies have poor visibility into their inbound freight activity.

Second, some companies don’t care about their inbound freight costs. They take the landed cost of their inbound shipments and add a markup. They are satisfied with this approach.

Third, some companies are concerned about upsetting their vendors by asking them what they pay for freight. These companies may be very dependent on certain vendors for specific products and have a perception that by engaging in a dialogue on freight costs, an area that the vendor has historically managed on their own, this may encourage the vendor to give priority to other customers. In some situations there is the perception that because the vendor is a large company, they are able to negotiate better rates than the manufacturer receiving the goods.

Fourth, companies often have a Transportation or Logistics Manager who is responsible for outbound freight; inbound freight is managed, unmanaged or mismanaged separately by the purchasing/procurement department. Shippers who take charge of Inbound Freight Transportation can achieve savings in a number of areas.

...
Hits: 371
0
Continue reading 0 Comments

 

b2ap3_thumbnail_dreamstime_xl_31478542_20160826-151328_1.jpgDuring this period of modest economic growth and ample capacity, freight rates have been in decline. This is confirmed by the various market indices that track freight rates. Lower energy prices that have translated in lower fuel surcharges have also helped keep freight rates in check. The data also indicates that some shippers are switching modes and moving from intermodal back to highway service to obtain faster service at more attractive rates. Looking ahead to the future, 54 percent of the trucking companies responding to a recent Inbound Logistics survey expect static growth in the near term.

Despite the drop in freight rates, 75 percent of shippers surveyed in the same study stated that reducing transportation costs is their top priority while only 38 percent indicating that finding capacity is a challenge. The static economy and low energy prices would appear to be creating a “perfect storm” for shippers seeking to meet their greatest challenge. The danger for shippers is to get greedy as many did during the Great Recession. We remember seeing shippers bid their freight multiple times a year in the hope of continuing to drive lower freight costs. While we are big believers in the value of high quality freight bids, we are also a strong proponent of the old adage, “you get what you pay for.”

We all know that just as there are cycles in the stock market and the housing industry, there are cycles in the freight industry. What goes down will go up again. Shippers that surround themselves with “bottom feeder” carriers at discounted rates will likely have a rude awakening when the market turns. Moreover, with new government regulations coming into play and the volatility of fuel prices, capacity will likely tighten and freight rates may rise sooner than later.

So what should thoughtful shippers do to manage their freight costs as smartly as possible? As stated above, we still believe that conducting a professional freight bid exercise, once a year or every two years is a wise thing to do. For shippers that include a range of quality carriers and logistics service partners in the RFP and conduct multiple round events, this is still a great way to secure savings in freight costs.

...
Hits: 418
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_m_52127653.jpg

Back in the 90s, I had the privilege of leading Canada’s largest Intermodal Marketing Company. Since that time, I have been a big supporter of this service. In our consulting work with shippers, we are often struck by the fact that this service remains undervalued and underutilized. The purpose of this blog is to challenge shippers to revisit and rethink their company’s intermodal activity and help them craft an effective plan within their supply chain strategy.

While intermodal service provides various benefits, the top advantage is that on longer lengths of haul (i.e. over 1000 miles), it typically costs less than over the road truckload service. While transit times are longer in some (but not all) instances, the economies of moving multiple containers on an intermodal train usually provide shippers with a cost advantage. When compared to truck transport, lower fuel surcharges and less exposure to driver shortages are also beneficial.

Over the past decade, all of the class 1 railroads in North America have invested heavily in their Intermodal terminal network and service offerings. As an example, a few years ago, CN Rail built a rail facility in Prince Rupert, British Columbia, the closest North American port to Asia. That port allows for the movement of intermodal containers on a single-line CN train from Prince Rupert across Canada or through Chicago as far south as New Orleans, LA. Here are a few steps to consider in preparing an effective intermodal strategy.

Step 1 – Revisit your vendor and customer service requirements

...
Hits: 699
0
Continue reading 0 Comments

b2ap3_thumbnail_Sample-Routing-GuideV1_20160429-193844_1.jpgMany shippers don’t achieve the cost savings they expect from their freight bid exercises. This can happen despite the time, energy and costs that go into these projects. Based on our work with shippers over the past twelve years, these are the main reasons why this happens.

A Failure to Provide Full Disclosure of Requirements and Expectations

As a prelude to the execution of a freight bid, shippers are required to gather and document the scope of their freight transportation requirements. For carriers to bid properly on a shipper’s freight, this goes well beyond volumes, lanes and transit times. Carriers need to understand everything about the pick-up, linehaul and delivery operations. Unfortunately, this does not always happen. The omission of certain requirements can lead to erroneous carrier selections and turmoil after the bid has been completed and the freight has been awarded. Here is one example.

Some shippers require early morning (i.e. 7:30 AM) deliveries. Not all LTL carriers are able to supply this service in all locations on a consistent basis. If carriers are not informed of this requirement in the RFP and then expected to meet this requirement in certain locations after the bid has been awarded, this can lead to service failures and pressure to bring back the incumbent (s).

A Failure to Gain Buy-In and Support from all Divisions and Sister Companies

...
Hits: 652
0
Continue reading 0 Comments

 

b2ap3_thumbnail_dreamstime_xl_24936632.jpgOnce 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.

...
Hits: 829
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_xl_44863193.jpg

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?

...
Hits: 906
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_xl_38118025.jpg

 

As everyone knows, it is very difficult to time the stock market. While we are all aware of the old adage, “buy low and sell high”, in reality, this is not easy to do.

When it comes to freight rates, it is sometimes problematic to select the right time to put a company’s freight out for bid. The last few years have been particularly challenging for shippers. After the Great Recession, carriers have been adding capacity in a prudent and deliberate way. Gone are the days when carriers build transport companies and hope that shippers will come. In addition to managing their fleet capacity, carriers have also been challenged with the struggle of recruiting qualified drivers.

Consolidation in the trucking industry has been very prevalent in recent years. In Canada, companies such as TransForce have acquired large chunks of the small parcel, LTL and truckload sectors. There are simply fewer carriers for a shipper to choose from. Carriers have gained pricing leverage over the past few years.

...
Hits: 886
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_l_20588089.jpgIn the last blog, I highlighted some of the opportunities that shippers miss out on to save money on freight when they don’t manage their freight spend data effectively. What steps can a shipper take to correct this situation? Here is a partial list.

• Utilize a Transportation Management (TMS) System. TMS systems have changed significantly over the past ten years. Shippers can now buy or lease a TMS system at a reasonable rate. For companies that don’t wish to make this investment, they can reap many of the benefits without making a capital investment by working with a logistics service provider that has a leading edge system.

• Make sure the company’s or LSP’s TMS system is capturing the key data elements on a daily basis that are needed to monitor freight expenditures. This includes complete and accurate commodity descriptions, actual weights and billed weights, capturing the various cost elements of their shipments individually such as the freight rate, fuel surcharge, currency exchange, accessorial charges, carrier name, origin and destination cities, state/province and postal codes/zip codes, ship date and arrival date.

• Sort the data in the following ways to help identify opportunities for improvement:

             By carrier – to reduce the company’s dependency and vulnerability in case of a strike or business failure and to leverage shipping volumes

...
Hits: 791
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_xl_24789336.jpg

A company’s freight costs often represents between two and ten percent of total revenues. For many companies in the manufacturing, distribution and retail sectors, their freight spend has a direct impact on their bottom lines. Nine years ago I wrote a blog with the title above. 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.

Nine years later, this problem persists and it is not limited to just small companies. In fact, many companies with freight expenditures of five to fifty million dollars or more face the same problem.

The challenge now is that freight companies have figured out that if they use their scales and dimensioning devices, they can weigh and measure the freight they move more accurately. If shippers have poor practices that hinder the flow of their assets, they can calculate the cost of these deficiencies. They are now charging more aggressively for these additional costs and for the precise cubic space occupied by the freight. As a result, carriers can and are securing revenue that they may have missed in the past.

What is interesting is that some of these shippers have high quality ERP and accounting systems. However, when you try to extract a year’s worth of freight transportation data, you receive a file that is riddled with errors and omissions.

...
Hits: 812
0
Continue reading 0 Comments

 

 

b2ap3_thumbnail_dreamstime_l_26568438.jpg

Many manufacturers and retailers throughout North America spend millions of dollars a year on freight transportation. Freight costs can represent between 1 and 10 percent of a company’s operating revenue, one of the largest cost items.  They are often treated as a necessary evil. From time to time a shipper may try out a new mode of transport, a new carrier or conduct a freight bid. Other than that, freight programs tend to remain fairly static from year to year.

During our years of consulting with shippers all over North America, we have observed a pattern of Best Practices that elevate certain shippers and companies above their peers. Employing these Best Practices allows these companies to reduce freight costs and improve profitability. One of the best ways to find out where a company stands in the area of Freight Management is to conduct a Transportation Audit. It is our view that shippers with a freight budget in excess of $1 million should periodically conduct an independent audit of their freight programs. Just as businesses audit their accounting practices, looking for opportunities for improvement, Transportation departments should do so as well. You might be amazed at what you find.

...
Hits: 994
0
Continue reading 0 Comments

Final Reflections on Freight Bids

Posted by on in Freight Bids

b2ap3_thumbnail_dreamstime_l_37182757.jpg

Freight bid projects have become one of the most commonly used methods of sourcing freight transportation services over the past two decades. They have become popular with shippers for obvious reasons. When done well, they produce good results. Manufacturers and distributors can strengthen their supply chains by selecting a dedicated group of professional transportation companies and save money on freight costs.

The carrier perspective on freight bids is often quite different from that of most shippers. They tend to dislike them for several reasons.

1. Many bids are not well done.

2. The process of responding to these bids is a lot of work and they often don’t produce any business.

...
Hits: 907
0
Continue reading 0 Comments

b2ap3_thumbnail_Sample-Routing-GuideV1.jpg

Some shippers operate under the misconception that once the bid awards have been made, the RFP process has been completed. This is not the case. There is another critical step that can “make or break” the bid process. It is absolutely essential, particularly in multi-plant companies, to have a process in place, immediately upon implementation, to monitor routing guide compliance.

There is an old adage in business that you cannot manage what you cannot measure. This fully applies to the implementation of freight bids.

Never underestimate the power of human relationships. Tickets to sporting events, golf outings, annual fishing trips or vacations at a carrier’s summer or winter residence can do wonders to dismantle the work of a freight bid. In our work we have seen companies use low ranked carriers, or even carriers not listed in the routing guide, to move their freight. To maintain certain long standing carrier relationships, some shippers can and will find reasons to make a switch back to the incumbents.

We would recommend that you not conduct a freight bid until your company is able to put in place some form of reliable compliance tracking. Even a weekly spreadsheet that displays by lane, the carriers moving the freight that week and the reasons for replacing a carrier in the routing guide, would be a helpful tool.

...
Hits: 919
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_xl_18515416.jpg

As the freight bid process comes to conclusion, there is an urgency to award the business so the shipper can begin enjoying  the cost savings that were achieved. While this is understandable, it is important to keep several things in mind.

First, if business is being awarded to new carriers, they need to come up a learning curve before they are as experienced as the incumbents. Second, some new carriers may have over committed during the bid process and are not able to perform at the expected level. For example, they may only serve certain lanes on particular days of the week or they may not have enough head haul or back haul traffic to bring their equipment back as quickly as expected.

Sometimes the shipper is at fault by not identifying the full scope of their requirements during the bid process. The company may have forgotten to disclose or incorrectly assumed that every carrier can make an 8:00 AM pickup or delivery every day. When informed, the carrier may determine that the best they can do, with their network, is effect a 10:00 AM or 11:00 AM delivery but no earlier. This may not be satisfactory for the shipper since they may need the freight early in the morning so they can dispatch their delivery vans at 8:00 AM to provide the service demanded by their clients.

We suggest that you test market at least some of the new carriers while keeping the existing carriers in place on those blocks of business. In other words, share the freight until such time that the new carriers have demonstrated that they can meet the service requirements. Guide the new carriers through the transition in order to increase their odds of success. Remember that this will create a win/win situation. This is also a good test of the professionalism of your incumbents.

...
Hits: 1369
0
Continue reading 0 Comments

b2ap3_thumbnail_Trucking-Companies.jpg

We live in an ever-changing world. Trucking companies come and go. They are being bought, sold, merged, downsized and resized every day. Under new management, a company may flourish or deteriorate. In this era of driver shortages, carriers are being very deliberate about how they allocate their capacity. As they focus on yield management, this precious capacity is being supplied to the carriers' most profitable customers.

In addition, trucking companies are constantly adding and losing business. A trucking firm may add a new account tomorrow at a higher margin than they are receiving from your business. This may cause them to make their capacity more readily available to another client. The bottom line is that it is always prudent to prepare for a “rainy day.” In other words, there is value in having backup carriers for most of your business.

This means that it is critical during the rounds of bidding, to smooth out the variances in rates between your “low bidders” and the others who were on the short list. By doing this, it reduces the cost differential in making a switch for any of a variety of reasons (e.g. poor service, carrier goes out of business, de-markets certain lanes etc.).

It should also be kept in mind that a carrier will not be too motivated to serve your company if they are a backup carrier in name but receive no freight. To achieve success with freight bids, carefully determine your primary and secondary carriers. This should include both asset and non-asset based providers.  While the temptation is there to give all your freight to the low bidder, to maximize savings, this can be a risky strategy. Where possible, select primary and secondary carriers. Give your backup carriers a reasonable volume of freight so as to keep the primary carriers “honest” and to keep all of your transportation providers engaged in serving your company.

...
Hits: 1040
0
Continue reading 0 Comments

b2ap3_thumbnail_dreamstime_m_22692747.jpg

We live in an era of impersonal communication. E mails, text messages, tweets and GoToMeetings have replaced face to face communication in many instances.

The decision to award millions or tens of millions of dollars in freight transportation to a set of carriers is a very important one. You don’t want to entrust your company’s business and reputation to poor service providers that say they will meet your needs and don’t deliver. You don’t want to commit your business to carriers that offer low pricing to secure the contract and then come back a few weeks later with a rate increase, claiming they misunderstood the bid. These situations happen all too often and they can be very disruptive and financially punitive to shippers.

It is our view that the bid evaluation and award process cannot be done effectively through automated computer programs. There is a requirement to meet “eyeball to eyeball” with companies that may be your future business partners. These meetings should have a formal agenda. In addition to pricing issues, there is value in reviewing the carriers’ operations in detail. This includes:

a) fleet size and age

...
Hits: 966
0
Continue reading 0 Comments

b2ap3_thumbnail_Request-for-Proposal.png

 

The objective of a freight bid project is to secure a range of carriers and logistics service providers that are best able to supply a shipper with the service (e.g. transit times, customer service, shipment tracking information), capacity (e.g. drivers, tractors, trailers, straight trucks) and pricing to ensure the company has a competitive advantage in the market. It takes time to do this right.

If your company has conducted a professional bidding exercise, you should be able to rank your service providers on a set of variables at the end of the first round of bidding. If the bidding process has been conducted effectively, there will likely be some significant cost savings, particularly for companies that have not gone to the market for several years.

There is a temptation on the part of some shippers to “take the money and run.” This could be a big mistake.

...
Hits: 1363
0
Continue reading 0 Comments

Most Recent Posts

Search


Tag Cloud

Driver Shortage Politics Omni Channel Cleveland Cavaliers Adrian Gonzalez shipping CITA Shipper Pulse Survey USA Truck CSA scores Canadian Transportation & Logistics Global experience Twitter Social Media in Transportation solutions provider robotics US Economy EBOR Management CSX Derek Singleton Right Shoring BNSF Transportation Buying Trends Survey Scott Monty rail safety Business Strategy Sales Training Freight mentoring CN Dan Goodwill NAFTA Donald Trump Blogging transportation newspaper home delibery Retail transportation Schneider Logistics Freight Carriers Association of Canada driver Tracy Matura freight audit Inbound Transportation Wal-Mart Social Media automation e-commerce Leadership Accessorial Charges coaching Railway Association of Canada Job satisfaction Warehousing JB Hunt Canada's global strategy routing guide Business skills NS 2013 Economic Forecast Transportation pipelines UP Trucking broker security freight bid Rate per Mile FMS Dedicated Contract Carriage Swift carrier conference Ferromex freight agreements Emergent Strategy Horizontal Supply Chain Collaboration financial management Crude Oil by Rail Transportation service bulk shipping shipper-carrier contracts peak season LinkedIn LTL business start-up network optimization Celadon Retail freight rate increases Transloading TMP Worldwide Distribution capacity shortage FCA US Auto Sales Life Lessons Truckload Doug Davis 2014 economic forecast employee termination transportation news Software Advice derailments US Manufacturing freight cost savings FuelQuest Success freight broker truck driver freight payment freight audit Dedicated Trucking freight costs the future of transportation APL shipper-carrier roundtable truck drivers KCS energy efficiency shipping wine Canada-U.S. trade agreement YRC TMS Sales Management professional drivers Finance and Transportation IANA Fire Phone Spanx Freight Rates Hudsons Bay Company 2014 freight forecast Global Transportation Hub RFP fuel surcharge 2015 Economic Forecast marketing Reshoring FCPC Colilers International freight forwarders Climate Change Success failure entrepreneur driverless US Housing Market Rail CSA Transplace Deferred Packaging Canada U.S. trade CN Rail Harper Davos speech Trump buying trucking companies Stephen Harper Trade Vision freight payment 3PL cheap oil CRM 2014 freight volumes tanker cars University of Tennessee freight transportation CP Rail Conway capacity shortages Amazon hiring process US Election $75000 bond Search engine optimization Muhammad Ali Toronto Freight contracts Otto freight transportation in 2011 Canadian freight market transportation audit economy intermodal Infrastructure ProMiles Business Transformation Strategy FMCSA Regina LCV's consumer centric future of freight industry Career Advice TransForce Driving for Profit Carriers small business Comey 360ideaspace Yield Improvement Entrepreneur Packaging selling trucking companies broker bonds Transcom Fleet Leasing David Tuttle shipper-carrier collaboration Canadian economy Canadian truckers Canada Training Rotman School of Business Training New Hires Loblaw Transport Capital Partners (TCP) Associates Microsoft Education Freight Recession Keystone Pipeline Map-21 trucking company acquisitions BlueGrace Logistics Failure dynamic pricing Masters in Logistics Freight Capacity freight RFP Bobby Harris Crisis management Facebook Broker Freight Shuttle System 3PLTL Freight Management NCC economic forecasts for 2012 2012 Transportation Business Strategies. Jugaad autonomous vehicles driver shortages dimensional pricing Shipper Surety bond Consulting President Obama NMFC Werner customer engagement Doug Nix New York Times MPG MBA Load broker freight transportation conference ShipMax drones

Blog Archives