Two weeks ago I looked at the economic realities we are currently facing. Leading economists are predicting either a number of years of slow growth or a return to recession. Last week I focused on some of the strategies carriers are employing to maintain profitability. In this blog I will highlight some of the strategies shippers are engaging to optimize their freight spend.
As we approach 2012, shippers are facing a soft economy but tight capacity. After being burned with excess capacity during the 2008-2009 recession, many carriers either parked equipment or left the industry. In the United States, there are estimates that of a 15 to 20 percent reduction in freight capacity, much of which has not returned. Carriers have been prudent and deliberate in adding equipment to replace an aging fleet or for limited growth. They have also become much more focused on yield management to maximize the returns on their assets. Against this backdrop, shippers are seeking ways to provide good service to their clients while maintaining effective control of freight costs. Here are a few of the strategies they are employing.
Manufacturers and retailers that were wary of intermodal service in the past are giving it a try. The intermodal numbers have been one of the bright spots in the transportation data that is published. While still a small percentage of overall freight activity, Intermodal numbers continue to increase. For shippers with freight moving longer lengths of haul (e.g. over 750 miles), that ship to warehouses or can take advantage of weekend transit days, intermodal service can be a cost effective option.
With truckload capacity tight in some areas, shippers are returning to the fundamentals of freight transportation to unlock savings. This can include revisiting their packaging configurations and loading procedures. Wal-Mart has been one of the leaders in challenging its vendors to revisit their packaging and shrink the size of their footprints so as to allow more freight on standard 53 foot trailers.
Shipper collaboration, even among competitors, is a trend to watch. The recent agreement between Hershey Corporation and Ferrero, two large confectionary goods manufacturers has made headlines. The companies will share warehousing and distribution assets to reduce truck miles, greenhouse gases and energy use. In essence, this arrangement will result in the two companies co-loading trailers that will lower the costs to bring their chocolates to market. As reported in a previous blog, Schneider Logistics is one company that is trying to cater to this need by creating a dedicated shared services LTL model.
Look for freight “speed dating” services to evolve as shippers seek partners that can provide top freight on top of base freight or vice versa to fill trailers more cost effectively. For carriers or logistics providers with a diverse stable of customers and good lane data, this would be a natural and much needed service that could gain acceptance.
Network optimization is another key instrument. As shippers expand the geographic scope of their vendors and customers to reduce costs and build revenues, this is necessitating the requirement to revisit the location of warehouses and transportation modes. It increases the need for effective carrier communication and collaboration so as to take advantage of carrier backhaul pricing and optimal mode selection.
Freight RFPs or freight bids continue to be key tool in the shipper’s arsenal to address rising freight costs. With carriers much more focused on allocating capacity to the highest yielding freight, shippers have to raise their game in this area to achieve success. This includes making more use of consulting services and procurement tools. It also includes expanding the scope of the transportation providers they use. Logistics service providers can bring together an assortment of carriers that many shippers may not be aware of. Modal trade-offs, effective data management, skillful leveraging and negotiating strategies are now required to unlock savings in a world of tight capacity.
In addition, shippers should be challenging all rate increases and asking the carrier for justification. Carriers need to demonstrate that they are employing the latest resources to improve fleet utilization and reduce miles per gallon. Shippers that accept carrier GRIs or unsubstantiated rate increases are doing their companies a disservice.
During these challenging times, effective shippers need to be innovative, resourceful and seek out Best Practices to keep their freight costs in line.
