In my previous blog (https://www.dantranscon.com/index.php/blog/entry/where-is-the-freight-transportation-industry-headed-in-2020), I outlined some of the forces shaping the freight transportation industry in 2020. This will likely be another year of upheaval.
In brief, the current “manufacturing recession” is restraining freight volumes. There will likely be a removal of a glut of fleet equipment. This coupled with the ELD compliance requirements in the US and Canada, and high insurance costs, may push out more poorly financed carriers. Political instability in the Middle East may drive up fuel costs. The maintenance of tariffs, even after the signing of the phase 1 China / US trade deal, will continue to drive up costs of supplies from China. This will likely make this a challenging year for shippers and carriers. It is very likely that shippers will face rising freight rates in 2020 to offset rising costs.
What can shippers do to restrain freight costs in 2020? Here are a few thoughts
1. Reevaluate your network and shipping practices
Shippers need to look at their sourcing practices. Can raw materials and semi-finished goods be imported from lower cost sources and can lower cost modes of transport (i.e. intermodal versus truck, full truckload versus LTL, moving consolidated shipments to specific destinations and deconsolidating at a DC and then shipping to destinations) be used? This is a time to perform an audit of your freight operations and update your shipping practices.
2. Become a “Shipper of Choice”
During the strong economic conditions of 2018, many shippers experienced truck capacity shortages. To obtain capacity, shippers were advised to become a “shipper of Choice.” They were encouraged to remove wasteful practices in their facilities that limited the efficiency of carrier drivers trying to make pickups and deliveries. As capacity surged in 2019, many shippers abandoned the “Shipper of Choice” philosophy of working with contracted core carriers in favor of lower cost options on the spot market. As capacity tightens, this strategy will likely get shippers in “hot water” again. If you don’t want to suffer through a year like 2018, now is the time to act.
3. Lock in financially sound, ELD compliant, safe driving core carriers
As highlighted above, a range of variables are pushing poorly managed trucking companies out of the industry. Look at the quarterly financial reports of the carriers that serve your geographic area. Leverage your volumes and sign contracts with quality trucking and intermodal providers that can supply reliable, consistent service and peace of mind.
4. Explore the use of Logistics and Dedicated Service Providers
Some of your core carriers may not have any or enough capacity to meet your needs on certain shipping lanes. Freight brokerage companies can fill these gaps. In cases where your company can balance customer deliveries with inbound loads of supplies, consider obtaining dedicated fleet round trip rates to reduce costs.
5. Conduct your RFPs now
In this year of transition, it is an opportune time to conduct an RFP on your freight volumes. This will allow your company to find a group of service providers that have the capacity, services and competitive rates to meet your needs for multiple years.
6. Practice very tight Freight Spend Management
It is always a good idea to revisit your spend management practices. Does your company have the data to monitor the modes, carriers and rates being paid for transportation services within your company? Can you identify carriers being used that are not in your company’s routing guide? Can you identify maverick spend (i.e. money spent on expedited services or non-standard modes of transport) that might highlight production problems or weak transportation compliance processes?
7. Use Smart Technology
Finally, look at the technology being used to manage your freight transportation. Does your company have a robust TMS (Transportation Management System)? Does it facilitate the consolidation of shipments whenever possible; does it ensure the right carrier is used on each lane? Is your company using static spreadsheets while automated tools, now available at very reasonable rates, could save your company money?
Now is the time to put your freight transportation department on a track for success.
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