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How to reduce freight costs in 2017

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If one of your goals for 2017 is to reduce your LTL (Less-Than-Truckload) freight spend, and your plan for achieving that is to issue an RFP in the hope that applying competitive pressure to carriers will encourage them to reduce their rates, you may want to think again.

 

Pricing discipline has been a focus for LTL carriers ever since a 2010 price war, which left firms facing an uphill battle in terms of returning to profitability.

 

So, when the sales representative from your favourite carrier takes your request for lower rates back to the pricing group, it is more than likely that they will come back to you with a price increase rather than a decrease.

 

The question then is what are cost-conscious procurement professionals to do?

 

1. Pursue carrier flexibility

 

Bidding out your LTL business every year is a good idea as you will be able to align your needs with the carriers that find it most attractive at that point in time.

 

However, this presumes some carrier flexibility. Procurement chiefs need to start educating their teams on carrier capabilities before an RFP goes out. Start by challenging organisational beliefs about different carriers with data and facts about performance. After all, it may be necessary to change carriers to save money.

 

2. Use regional carriers where possible

 

Regional carriers typically offer a lower price point, with transit times often equal to or faster than national carriers. Using a national carrier for regional shipments typically leaves money on the table. At Insight Sourcing Group, we have seen cost gaps of 30% or more between competitive regional and national carriers.

 

3. Cost-optimise shipment routing

 

You should have more than one LTL carrier. If you don’t, you are likely not taking advantage of the fact that carriers tend to have some geographical pockets that are more competitive than others.

 

If you have multiple carriers, you must determine how to best use each one. The easiest way to optimise routing is to employ a technology solution into which you can load all of your pricing agreements to gather all the right information on a shipment-by-shipment basis.

 

Many shippers, however, do not have such technology, so use a routing guide, which tells them the carrier to use based on shipment origin and destination.

 

In order to generate that routing guide, a comparison between carriers needs to be conducted that takes into account the varied LTL pricing factors of tariff discounts, minimum charges, fuel surcharges, accessorials, and transit times.

 

A robust comparison requires a deep dive into historical data. Many shippers’ routing guides only account for tariff discounts, and do not take into account the fact that often the best-priced carrier does not have the best discount.

 

Judging the true low-cost option is only possible when you have a solid handle on your shipping patterns.

 

The key takeaway here is that spending the time to understand your shipping profile and modeling your carriers’ pricing structures against that profile can lead to significant cost-reduction for the business.

 

Ryan Heath is a consultant with Insight Sourcing Group and a transportation sourcing subject matter expert, having sourced hundreds of millions of dollars in spend across a variety of modes.

 

This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.

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