This year, all signs point to rising freight rates. With driver shortages across North America, driver wages are on the rise. On an almost daily basis, there are reports of trucking companies offering signing bonuses and pay for performance (productivity) packages to attract more drivers (at a higher cost) to their firms. Capacity shortages, government regulations and increases in fleet costs are all driving upward pressure on costs. In addition, economic growth is increasing the demand for transportation services as freight carrier consolidation, particularly in Canada, reduces the range of carrier choices.  New pricing methodologies (e.g. Dimensional Pricing) will also serve to push up freight rates, particularly for low density LTL shipments.

Shippers have been using Freight RFPs or Freight Bids for years in an attempt to keep freight rates under control. The question is whether FRPs still work effectively in a climate of rising freight rates? As a company that has been conducting freight bids for over ten years, the answer is yes, but they take more thought, more planning and more work than is the past. Here are a few tips to ensure your company achieves the best value for its transportation dollars.

1. Leverage your volumes

Your company’s volume of freight, in the traffic lanes where your vendors and customers are located, is the deck of cards your company brings to the table. One of the keys to success is to leverage these volumes as effectively as possible. To do so, it is helpful to consolidate (for purposes of rate negotiations) the freight volumes you have across multiple plants, divisions, sister companies and/or even competitors, if possible. Larger freight volumes give you a bigger bargaining stick.

Freight rate increases are coming this year. The economy is on the upswing. Truck capacity is tightening as driver shortages, government regulations, cost overruns from a very challenging winter and carrier financial prudence all push freight rates in one direction - - - higher What can shippers do to mitigate the impact? A lot. Here is my list.

1. Capture your Freight Costs

Take a look at your freight costs and compare them to prior years. Look for opportunities to fix negative trends (e.g. lack of discipline in moving less than optimum size shipments, too much expedited or air freight etc.) that may have arisen.

2. Benchmark your Freight Costs

Obtain rate quotes from carriers that serve your traffic lanes. Compare their rates to yours. If your company ships high volumes, consider obtaining a benchmark freight rate service on at least your major lanes of traffic. The study will at least tell you if your company is paying market rates or higher and identify carriers that provide the same service at lower rates. There are also companies that provide an ongoing fee-based benchmarking service.

One of the most enjoyable aspects of our work as consultants is that my colleagues and I have an opportunity to visit companies in a variety of industries.  We typically are engaged to help businesses that have issues with freight management.  While some of our clients may be Best-in-Class when it comes to manufacturing or retail, they are often not as skilled in managing freight transportation. 

We often notice that their freight strategies are not aligned with their business strategies.  In fact, they often inhibit these companies from achieving the bottom line results that they are so desperately seeking.  Here are some of the things that we commonly observe.

Many companies focus on the outbound movement of their freight to their DCs, retail stores or customers.  They let their vendors control all or some of the deliveries of raw materials or finished products to their main manufacturing or distribution facility.  This can produce several negative financial impacts. 

For many vendors, freight is a profit centre.  They mark up their freight costs and include the inflated cost in the landed cost.  By not having control of inbound freight movements, this restricts the leverage a company can have with its carriers when it comes time to negotiate freight rates.  It also limits the opportunity to perform consolidations to further reduce freight costs.

We also observe that a number of companies are not providing their clients with the level of service they require.  This can occur for several reasons.  The carrier may be picking up or delivering the shipper’s products at the wrong time.  Their transportation network is not aligned to the needs of some of its customers.  A late pickup or delivery, on a consistent basis, can mean the loss of customers.  It may result in wasted warehouse or store expense as the crews stand around waiting for the freight to arrive.  In addition, carriers may be holding freight on their docks to build better loads to certain destinations.   They do this in the hope that shippers that do not carefully track the on-time service performance will not notice these late deliveries.

Two weeks ago I wrote about two exciting young companies (PostBidShip and Buytruckload.com) that are applying Innovation and Technology to the automated freight brokerage/freight portal space (http://www.dantranscon.com/index.php/blog/entry/innovation-and-technology-come-to-the-freight-brokerage-industry).  Subsequent to that blog, I was made aware of two more interesting companies that have entered this space, QuoteMyTruckload.com and Freightopolis.  I contacted each of these companies to learn more about their operations. 

QuoteMyTruckload.com

QuoteMyTruckload.com (www.QuoteMyTruckload.com) is one of the portfolio of services offered by InMotion Global Inc., an Interstate Logistics Group Company based in Saint Petersburg, Florida.  The company began as freight broker.  QuoteMyTruckload.com is the truckload quoting and rating module available through their InMotion Global TMS® (www.TheFreeTMS.com) transportation management software solution that is targeted at large shippers moving heavy volumes of freight.  It utilizes the same patented truckload quoting technology.

What can I do to save money on freight?  The same question comes up with every shipper I meet.  This is a legitimate concern.  Freight rates are on the rise.

The economy is improving slowly and this is pushing up costs.  Motor carriers are experiencing cost increase pressures from higher fleet purchase prices, the shortage of qualified drivers, planned changes in Hours of Service, the impact of the U.S. CSA program (e.g. culling unsafe drivers) and the more disciplined approach being taken by many carriers to add to their fleets (based on solid customer demand) and to allocate their assets to high-paying, loyal shippers.  While this is a daunting list of cost increase pressures, there is much that enterprising shippers can do to mitigate cost increases or even reduce freight costs.  Here is my list.

1. Capture and benchmark your freight costs

In one of my recent blogs (http://www.dantranscon.com/index.php/blog/entry/to-save-money-on-freight-lets-focus-on-good-data-rather-than-big-data), I encouraged shippers to construct a freight activity data base.  This should include a detailed data template that contains origin/destination/shipper/carrier, freight revenue data.  In addition, shippers should assemble the current freight budget, actual expenditures and the variances.  This will be the starting point for just about any project that you work on.  Without quality data, you are not in a position to undertake too many freight projects effectively.  You can’t manage what you can’t measure.

2. Conduct a Transportation Audit