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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

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Some large LTL carriers have announced rates increases this fall. Old Dominion, XPO Logistics, YRC Freight and UPS Freight have all declared 4.9 percent GRI rate increases on non-contract LTL freight that took effect in September. In survey after survey, shippers have claimed that cross reductions are their number one priority. How can these two conflicting strategies be resolved?

It is important for LTL shippers to realize that LTL carriers are serious about making these increases stick. Despite somewhat muted demand for LTL service, carriers are making a determined effort to secure these increases.

One of the major reasons for the focus and discipline is balanced capacity. Most of the large LTL carriers shrank their networks considerably in the aftermath of the 2008-09 recession. As a result, there’s not a lot, if any, excess LTL capacity. Yield management is the priority this year. With limited capacity, there is little value in triggering a price war. A race to the bottom does little to help carriers raise their margins. LTL carriers are looking at their margins per lane and per account and taking action on contracted and non-contracted freight to improve yields. What can shippers do to mitigate these GRI increases?

For companies that have significant volumes of freight, they can put their business out for bid, leverage their volumes and sign multi-year contracts with minimal rate increases in subsequent years. There are a number of Best Practices that can be employed to make your freight bid a productive process (http://www.dantranscon.com/index.php/blog/entry/freight-bid-tip-1-obtain-buy-in-and-participation-from-the-operating-divisions ). For shippers that routinely do this on an annual or bi-annual basis, there are other avenues to pursue.

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