We continue our look at all of the facets that go into (less-than-truckload) LTL freight shipping by covering the areas you can look to as a way to combat rising LTL freight costs. As you know, each year, LTL carriers typically announce an increase in their rates, and they have for many consecutive years. But you are not forced to just take those rates and say, “I guess it just costs more!” There are things you can do to mitigate your LTL freight costs (even beyond just the rate!). If you haven’t been keeping up with our LTL freight series by checking out “What is LTL Shipping?”, the benefits of shipping via less than truckload freight, the 10 factors that make up a LTL freight rate, and then the factors that go into determining LTL freight class.
We will conclude our series on Monday by expanding more on the use of technology and freight management services to even further still decrease resources needed to manage LTL freight shipping costs.
7 Areas to Look at in Order to Save on LTL Freight Shipping
Many shippers of freight are overspending on LTL freight shipping by not fully understanding how to save on LTL freight costs. In some cases, this overspending totals tens of thousands to hundreds of thousands of dollars each year. Understanding some of the following ways to save on LTL freight shipping.
1. Education is KEY: Understand the Factors that Go into a LTL Freight Shipping Rate
In our factors that go into LTL freight shipping rates blog post earlier in this series, we provided 10 factors that go into generating LTL freight rates. The more you understand these factors, the more likely you are to get the most accurate freight rate possible at time of shipping, so there are no surprises on the back end causing further time (and time is MONEY) spent on dealing with your LTL freight shipments. Some of these factors are accurately knowing weight, distance, density, desired time of shipping, and choosing the right insurance. But, usually, the most overlooked, but most important aspect is choosing the right freight class. If you end up selecting the wrong classes consistently because you are no, such as class 50, you could be leaving money on the table by actually picking a class that creates a higher rate.
2. Think about using multiple modes of shipping
Sometimes you may have a shipment that you think would be great for LTL freight shipping. You’ve been shipping LTL mostly and feel very confident processing, managing, and understanding the LTL world, so you always try and choose that shipping mode. However, if your freight is oversized or near 20,000 pounds, or perhaps nearing around 5 or more pallets, you may consider a volume move and get a spot quote by the carrier’s rate department or through your third party logistics provider services. Additionally, you may want to look at Truckload rates and see if you can find a better rate through multiple TL carriers.
3. Outbound LTL Freight Shipping Accounting Options: Prepaid vs. Prepaid and Add in Outbound
Let’s first talk about outbound LTL shipping. You may ship freight to small and medium sized companies and you come to agreement with your customer that you will sell your product on a freight prepaid and add basis. After all, you ship a lot of goods and probably have better freight rates than your customer. You select the carrier, you dispatch the carrier and you pay the carrier. Then you invoice the customer for your product and for the freight charges.
A surprising number of companies decide to mark up the cost of the freight charges and make an additional profit in this way. On the other hand, some companies pass on the freight charges with no markup.
Those that decide to mark up the freight cost have thought it through. They feel that it’s their overall shipping volumes (volumes that their customer does not have) and their hard work in making sure they have (‘the most competitive freight rates’) possible that allow them to mark up the freight. They feel their internal costs of picking the product, packaging, calling the carrier, loading the freight and the carrying costs of paying the freight invoice prior to the customer reimbursing the freight cost should be compensated in some way. This is often known as turning your LTL freight shipping into a profit center on the outbound side. This is a direct hard cost savings benefit for your shipping department.
Those that decide to pass on the freight cost without markup (a.k.a “prepaid”) feel that their competitive freight rates allow them to compete with vendors who may be closer to the customer and if they mark up the freight costs this might not allow them to make the sale in the first place. Many think the practice of marking up freight costs is just not good business practice.
4. Inbound LTL Freight Shipping Accounting Options: Prepaid and Add vs. Collect
One of the simplest and easiest ways to immediately cut your inbound LTL freight shipping costs is to change your shipping terms from “prepaid and add” to “collect.” Having your vendor or supplier ship collect on your recommended carrier eliminates any handling charges, thus saving you money.
When you gain more control over your inbound shipping, you can save on freight shipments coming into your business every day. As the buyer and receiver of the goods, you can (and should) designate the carrier and arrange for shipping charges to be billed directly to you at your discounted rate. This is called routing shipments inbound “Collect.” Collect is a billing option, in which you are invoiced by the carrier. It does not mean paying the driver at the time of delivery.
Shipping inbound collect also reduces the number of carriers from different suppliers arriving at your receiving dock every day. When you control the routings, you control how many trucks deliver to your door. That also makes it easier to maximize your staff’s efforts.
5. Think “Long Term” LTL Freight Shipping costs to TRULY Save
We understand we all must take a look at the costs in front of us right now to better manage our freight spends. But, you have to understand the outcomes from the choices in choosing the least cost LTL freight carrier for each shipment. You must consider other factors when it comes to choosing which LTL freight carrier is really offering more attractive “long term” LTL freight costs. So, what is a “long term” LTL freight shipping cost? You must consider the following before you always choose the least cost carrier to make the best decision:
- Does the LTL carrier provide the right amount of liability insurance for your specific freight shipment? This could end up being a big headache down the road when freight damage occurs and you go through the process of getting your freight claim paid to cover the cost of your damaged freight.
- Is the LTL carrier reliable in getting your freight to your customer in time? We all know the hard reality of losing a customer because you aren’t getting your freight to them on time.
- Do you have a system or program that helps you grade your LTL freight carriers performance over time? Relationships are very important, don’t get us wrong, but don’t keep choosing a LTL freight carrier because their rep gives you tickets to games or concerts. Make sure you keep your LTL freight carriers honest and have some way, either through your TMS or some records keeping, and have regular reviews of their performance in order to make sure the LTL carriers you are choosing are truly the best ones. Then you must make sure your transportation dispatchers/managers are staying in line with the best LTL carriers. You can avoid your people choosing the wrong one, by taking the LTL carrier out of your TMS system if you are using one.
6. Use a Transportation Management System for LTL Freight Shipping
Another way you can save on LTL freight shipping costs is to employ freight technology, such as a transportation management system, freight claims software, and accounting software. Make sure all of these systems can speak to each other through web services or integration so they work seamlessly together and don’t create more resources required to manage them. When you use technology such as a transportation management system you can:
- Eliminate manual process
- Have multiple carriers to choose from at your fingertips
- Ability to analyze data and shipment activity to arm you with more knowledge
- Track and manage employees and activity
- Decrease time in training new hires
- Easily deploy through web-based applications, meaning no costs to install or keep up the system
The idea of using a TMS as a tool to empower you with processing LTL freight shipment aids in decreasing the resources needed and the time in which you spend trying to arrange and finalize a LTL freight shipment.
7. Use a Third Party Logistics Provider to Aid in Managing LTL Freight Shipping
If you are a small shipper, saving money on shipping is crucial to your business. Thanks to the internet, consumers are able to compare price between competitors in a matter of seconds. Because of the recession, consumers are price-driven and will purchase the item with one of your competitors for a minimum savings.
One way to be able to be more competitive is to lower your shipping cost. How do you do this? I hate to break it to you, but it’s a catch 22. In order to get big discounts with LTL carriers is to have volume, but you can’t get the volume because your shipping rates are too high. Now, let’s level the playing field. Working with a third party logistics provider can offer you tremendous savings since generally their LTL freight spend is in the millions. For years, food distributors have been forming co-ops, by combining the freight spend of several hundred companies, into one. Think of a third party logistics company as a co-op.
Beyond just the volume, a third party logistics provider can help you with many things such as providing a transportation management system, help with freight accounting, and freight management services such as claims, carrier relationship management, and more!
You are not forced to have to deal with ever rising LTL freight costs. You have control. Make sure you use the above ways to save on LTL freight costs and truly take control of your freight spend. What OTHER LTL freight shipping savings tips do you have to offer? Let us know in the comments section below!