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.
Manufacturers, distributors and retailers should periodically conduct a transportation audit (http://www.dantranscon.com/index.php/blog/entry/is-your-company-a-best-in-class-shipper-find-out-with-a-transportation-audit ). These exercises, when well done, can provide a road map of potential freight cost savings. A comprehensive audit will find opportunities to reduce LTL costs through modal substitutions, packaging changes, smarter rate negotiations, more optimal shipment planning or a host of other ideas. If you haven’t done this for a while, this is well worth pursuing.
Three other areas to investigate are to improve negotiating leverage, supply chain planning and freight spend management (http://www.dantranscon.com/index.php/blog/entry/becoming-a-best-in-class-shipper-4-freight-spend-management ). For companies that have modest or limited volumes, there are ways to increase their negotiating capabilities. This includes combining volumes with sister companies and/or even competitors. Some manufacturers can join or form buying groups. These groups can negotiate rates on behalf of all members of the consortium and help reduce costs.
Better supply chain planning can also be helpful. Shippers can communicate with their vendors and customers concerning order lead times and inventory/safety stock levels. Are there opportunities to obtain more lead time on orders from customers? Can shipments be consolidated and then transported on specific days of the week? Can alternate modes be used? Rather than standard ground LTL, can partial or full truckloads be created? Can alternate modes be used? In Canada, there is the option of moving long haul LTL freight via intermodal rather than over the road. Can inbound freight management be improved to allow for the preparation of larger orders?
Companies with solid freight spend management practices have freight budgets and detailed expense variance reports. They are able to develop an effective LTL freight budget and make sure that their expenditures correspond with their budget projections. Variances are identified and action is taken. LTL carriers have made it clear that they are seeking rate increases this year. Rather than go into a defensive posture, shippers with thoughtful carrier management strategies can mitigate these rate increases.
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