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GlobalTranz Resources

7 Freight Costs Considerations That Will Have Shippers Rethinking In-House Transportation Management

freight costs

Freight costs are eminently controllable, however, efficiently managing this major budget item requires expertise. In the complex world of modern transportation, companies lacking the experience to professionally handle the intricacies of transportation management are sure to find controlling shipping costs an extreme challenge. For the company determined to try, it is critical to maintaining constant guard on cost controls at every turn in every transaction, a daunting proposition for most companies whose competencies are not developed with optimal freight costs control as a core area of focus. Here are just some of the typical issues that businesses encounter in undertaking self-management of freight transportation management.

Skill Set Development

Commonly, companies struggling to independently manage transportation and logistics quickly discover that it’s a full time job. Most businesses ultimately determine that this area of responsibility cannot realistically be merely subsumed under packaging, warehousing, or other operational functions. This is especially true if the objective is to optimize freight costs controls in order to realize significant savings that can be passed on to customers and company stakeholders. To reasonably expect success in this business function, it is necessary to identify an experienced, talented, and extensively connected transportation manager with a strong track record of success in the role or easily find that resource from a third party logistics company focused on transportation mangement.

Dedicated Position

Companies are usually fully-focused on production and customer services and have not dedicated a management role to building the skills required to make freight costs control appreciably impactful to their profit margins. Predictably, individuals who take on the job of managing freight costs find themselves overwhelmed by the effort, often due to attempting to juggle their regular responsibilities with a new range of complex challenges that account for a second full-time workload.

Not surprisingly, when the employee taking on these responsibilities becomes over-burdened, he or she is most likely to become less efficient in regular work assignments—and, unfortunately, very often without succeeding in yielding the desired freight costs management results after all. Underestimating the scope and complexity of the considerations and the scale of the freight cost management function is the primary pitfall in factoring the financial and operational advantages and disadvantages that comprise the calculus for determining feasibility of in-house transportation management.

Bottom Line Strategizing

Shipping costs impact all departments’ budgets. It is insufficient to approach freight costs management by simply reducing departmental budgets without rationales that are based on actuals along with calculations of myriad logistical factors included in freight costs. Optimizing transportation management systems requires development of a comprehensive strategy that treats the business in its entirety. Further, to operate effectively, transportation management must be equipped with software services designed for tracking expenditures across all departments throughout the business, and for rate-tracking, and for acquisition and integration of much other necessary logistical information.

Restrictive Modalities

In many cases, operating within an organizational hierarchy encumbers the in-house transportation manager with special impediments to the kind of seamless acting on incoming data that is necessary for freight costs management to be effective in such a dynamic field wherein one must respond with continuous adaptations and proactive moves to counter the constant undulations across shipping markets from intra-regional to international networks. This is a fundamental error in structuring the unique role of a transportation manager. While keeping authority to make financially impactful decisions on behalf of the company makes perfect sense in many other departmental management roles, it is essential that the freight transportation management function is vested with necessary authority to strategize, compromise, negotiate, order changes, design and implement new routines and methods, and execute transformative decisions in real time.

Without such room to resourcefully manage costs by creatively manipulating elements and entities across the board, the transportation management function is hamstrung and cannot follow through with the level of precision and rapidity of adjustments that are crucial for consistently capitalizing on all available opportunities for increasing expediency and reducing waste of resources. Fully realizing the potential financial benefits of optimized freight management requires broad reach of the mandate to shift along with contingencies as necessary. The freight manager attempting to operate without this authority cannot be ideally effective.

Contact Network Development

The shipping industry has been built on relationships between the most well-established U.S. domestic carriers and their long-time priority customers. In short, relationships are the crux of the freight and transportation management world. Obtaining good rates much depends upon freight transportation management’s long-term relations with carriers. The greater the number of strong relations with individual contacts at particular carriers a shipper has established, the more efficiently the shipper can be expected to perform  in obtaining competitive pricing, scheduling ideally, and controlling freight costs. Transportation managers with the highest levels of experience and reputation, and the broadest range of network contacts, are those with the necessary pricing leverage to most effectively manage freight costs.

Job Territories

Due to the magnitude of the undertaking of optimizing delivery service and control of freight costs, it is very common these days for companies to utilize outside services for their transportation management. When transitioning from in-house personnel to a professional transportation service, there is occasionally an issue of concern by one or more employees who had, up to that point, been either officially or unofficially responsible for managing some or all of the transportation management functions, and may feel displaced or disenfranchised by the change.

This problem, of course, is natural during any changes that shift work away from a company’s in-house team members in order to reduce costs. Staff may sense that they’re at risk of replacement by way of sourcing the business function to a new external team who become, in effect, an appendage of the business. So, of course, moving transportation management as a means of cutting budget is a transition that may require sensitivity and special care in addressing it with personnel who may feel in any way affected by the change.

Third-Party Logistics (3PL)

To accomplish meaningful freight costs savings, a transportation manager must serve as much more than a metrics monitor (a.k.a. “bean counter”). Without a pervasive network of strong industry contacts, and especially without the experience of a seasoned industry professional, it is understandably not uncommon for the job to prove simply too difficult for an in-house logistics and transportation management representative new to the vast complex system to compete with the degree of efficiency that is possible with a professional transportation management firm.

Businesses sometimes are under the misimpression that 3PL services are only feasible for big companies (this report reinforces shippers of all size are now targeting to hire 3PLs for transportation management in 2015 and beyond). However, on the contrary, modern 3PLs provide a wide range of service options, even for small businesses, and can quite quickly take over a business’s transportation operations. In fact, a 3PL can normally provide all software and other administrative tools, and the needed expertise for less than the cost of an in-house employee dedicated to transportation management. Altogether, many small companies have found that the 3PL option affords them a powerful resource for significantly increasing delivery service quality—which translates to financial benefits from increased customer satisfaction—and simultaneously reducing freight costs.