Our customers, naturally, always want to make sure they are getting our best price when it comes to shipping costs. Of course, who doesn’t want the most competitive discounts?
Discounts are great and should be actively managed, but there are ways you can reduce freight expenses by simply optimizing your shipping strategy. You’ll see real dividends through shipment optimization. Step back and look at your shipments throughout your enterprise, chances are you’ll have disparate business units shipping loads to the same customer locations! An audit of your shipping operations will uncover areas where you could consolidate and save. For example, you could combine several smaller shipments into one big shipment.
Shipping optimization simply boils down to being smarter about how you build your loads and applying multiple tactics to achieve savings. I’d like to share five tactics with you that’ll put you on the path of optimizing your shipments: Supplier Inbound Compliance, Outbound Routing Discipline, BOL Reduction, Mode Shift, and Assessorial Audits.
5 ways to optimize your freight shipments and save big:
Supplier Inbound Compliance
Make sure you have consistent processes in place for managing all your inbound freight. Perform an annual audit to measure what percentage of your material Purchase Orders had “Collect” shipping terms versus “Prepaid.” In general, a buyer should always control their inbound transportation unless the product they’re buying is extremely expensive or risky to move. Try using a web-based routing guide to instruct your suppliers that carriers to use when shipping to your locations. Add these instructions to your PO.
If you allow suppliers to ship freight prepaid, you run the risk of paying 10-40% upcharges/premiums, which are profitable for the supplier and expensive for you the buyer. Moreover, you may be paying state sales tax on freight charges if they’re buried in the overall product cost, also known as Freight Allowed or Freight Included. Supplier inbound freight is never free!
Outbound Routing Discipline
You have thousands of carriers you can choose. Are you picking the right carrier? Are you picking the low-cost carrier every time, or are you choosing a carrier based upon convenience? Or maybe your carrier choice depends on who’s giving your team game tickets or who’s pulling up to your dock at the right time.
Make sure your processes for picking carriers are consistent across your company. Try using a web-based TMS (transportation management system) to provide your team with the means to quickly compare carrier rates and transit service before routing.
If you reduce the total numbers of BOLs (bills of lading) created each day, you’ll reduce freight costs. If outbound shippers (or suppliers shipping inbound) spent time combining more orders into one shipment, you would reduce the total shipment count on a monthly basis, and your freight costs would go down substantially.
For example, freight buyers within a company could be sitting next to each other trying to cut a deal to two different suppliers that are just 10 miles apart. But neither buyer knows they were buying products from suppliers in such proximity to each other.
Mode shift is when you combine multiple shipments into a single, larger shipment. With this tactic, you want to move your shipments into a different, less expensive mode. For instance, combining multiple LTL shipments into a volume LTL or a partial truckload. Another option is combining multiple LTL shipments into one, full truckload.
In general, if you can you take a truck off the road and run that load via intermodal rail, you will save money. A route over 750 miles is the rule of thumb for evaluating IMDL. When shipping expedite, it’s important to compare ground and air freight options. On any given shipment, air freight might be cheaper than a sprinter van, but on a different shipment, two guys in a cargo van or 28-foot box truck might be cheaper than shipping via air.
Assessorials are those additional charges that are tacked on to your shipments like what airlines do with baggage fees and food charges. These fees can add up to the point where they could obviate any savings achieved through a discount.
Take the time to audit your assessorials on your invoices to make sure you’re not over charged. Look closely at both your LTL and truckload charges. An LTL carrier could apply more than 50 assessorials to your bill, and UPS or FedEx assessorials could hit 100!
Some common assessorials to look for, include minimum charges, weight & Inspection, Canadian clearance fee, high-cost delivery zone and the lift gate. For example, either you or your 3PL might be able to negotiate an average $75 lift gate fee down or have it removed altogether. Frequent audits of your assessorials could net big savings.
By Justin Hall, President
Logistics Planning Services