Freight Costs Creeping Up Again
Transportation Industry July 7, 2010
Maximizing Your Freight Dollars
As the economy gradually recovers, the impact on shippers is predictable, and some different strategies offered in a partnership with a third party logistics providers are worth considering. The first reaction will be price increases, directly through lane rates, or by using tools such as fuel surcharges. In the first case, as a customer, you will need to sign off on any rate adjustments, but depending on the lane, you may not really have any better options. Even worse, if you have an irregular shipping pattern, and rely on spot quotes, you may be in for a real shock. As for the fuel surcharge, can we honestly claim to keep abreast of all our carriers, some of whom even change their rates weekly, or even more often?
Why do transportation companies do these things, which frustrate their clients so much? The simple answer is that during down times, they operate at very low margins to keep their strong lanes running as full as possible, and to meet their service commitments. As volumes decrease, they react by taking more and more equipment off the road and as the recovery starts, they would prefer to maximize volumes, while sacrificing a bit of their service levels. This explains why you get those pickups put off for a day, or why it takes a day or two longer in transit than usual.
One of the reporting metrics an Ltl Terminal Manager usually is responsible for is the profit margin for all the trailers that leave their terminal. So, if he picks up more freight one day than he has available trailers, the likely outcome is that the freight that pays the best will be prioritized.
If it sounds like I am characterizing freight companies negatively, it's not my intention. It's just important to understand that they are an industry that undergoes, even in good years, large seasonal swings. They are an industry that operates at very low profit margins, and they are forced to park their expensive, maintenance heavy equipment when things slow down.
These are some important considerations, when weighing the benefits of a partnership with Logistics Company. Consider your volumes into a region, and if your available inventory allows, it may be worth considering moving larger amounts into a 3PL, and having them ship your orders out. Time and time again, I have been able to demonstrate to prospective clients that whatever new costs you will assume in the warehousing, the freight savings by consolidating one large load versus several small ones more than makes up for it. At the end of the day, even if the costs are equal, you still gain the advantage and reliability of having the stock on hand, in the market where your clients are. Your best client has an emergency? We could accommodate a same day rush service. That's always an easier sell to your clients than "Well, the stock is in Toronto, it can be in Vancouver in 5 days?"