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.
What is even more disappointing is that many companies simply don’t know what they spend on freight or don’t seem to care. One comment we hear is that the company’s freight bills are audited by a freight audit company or by a knowledgeable resource within the company. If any discrepancies appear, they are addressed by one of these individuals. This is not what we see. A failure to manage a company’s freight spend can result in many missed opportunities to improve the company’s bottom line. Let me explain.
With good quality freight spend data, a shipper can identify:
• Opportunities to consolidate smaller shipments into larger lower cost shipments
• Carrier selection errors where small parcel shipments are moving with LTL carriers at LTL rates rather than small parcel carriers at small parcel rates
• Non-compliance with a company’s routing guide that could be costing the company many thousands of dollars
• Opportunities to take advantage of lead times to use less costly (intermodal) or alternate (standard ground versus expedited) transportation
• Recurring accessorial costs that can be reduced or eliminated through implementation of Best Practices
• Paying spot rates for recurring freight movements that should be under contract
• Use of carriers due to historical relationships rather than due to proper price and service requirements
• Rate changes brought on by a reclassification of a commodity (due to a change in packaging, scaling or other reasons) rather than a rate increase • Core carriers that are providing transit times that are inferior to non-core carriers which can be used as leverage in rate negotiations
• Opportunities to quantify the precise impacts of changes in shipment measurements, freight rates and accessorial charges.
In other words, the company may be paying the rates that it negotiated with its carriers but it may be missing many opportunities to reduce its freight transportation expenses. What can a company do to fix this problem? Find out in the next blog.
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