Suppliers’ primary needs have traditionally included service execution, affordability, on time services, and risk reduction. They remain the cornerstones of integrated supply chain participation requirements for small and medium shippers, while some aspects of these standards are evolving as integration levels increase.
Freight transportation costs are a significant portion of the overall cost of goods, and can account for up to 40% of logistics costs and up to 10-20% of retail prices. This means that even when shipping is advertised as “free,” the cost is ultimately passed on to the consumer in the form of higher prices. There are a number of factors that contribute to the high cost of freight transportation, including the cost of fuel, the cost of labor, and the cost of equipment. In addition, the cost of freight transportation can vary depending on the distance that goods need to be shipped, the type of goods being shipped, the supply vs demand and the time of year.
Finding the sweet spot between costs and service can be quite tricky, but here are five factors that you can take into account that affect transportation costs and how you can manage the compromise between them.
1. Your Market
The level of competition in your market can be high, where every competitor wants to be seen as a well-established player. Undercutting your prices in order to attract customers may seem like the best option. But you will need to take into account that your goods will have to travel a long distance to reach your target audience, which will add to your costs. There are a number of government regulations that you will need to comply with, such as hazardous materials standards, over-dimensional restrictions, and weight constraints. You will also need to be careful to avoid backflow or combining supplier shipments/locations due to traffic imbalance. Keeping in mind that certain product movements are seasonal, and shipping costs will vary across the four seasons. You will need to factor this into your pricing strategy.
Transporters and manufacturers have little control over many of the market conditions that affect transportation costs. These include things like the cost of fuel, the availability of shipping containers and equipments, and the political tendencies of the cities and counties involved in the shipping route. As a result, importers often have little flexibility in negotiating transportation costs. This can be a major challenge for businesses that rely on goods that come from out of state, as it can lead to higher costs and uncertainty in their supply chain.
2. Your Load
Joking aside, the products you ship impact freight costs in a number of ways.
- Density: Low-density products are typically more expensive to transport per pound. These are bulky items, such as furniture, that may not weigh much but have a high weight-to-volume ratio. Find out a bit more about shipment density in this article: (LINK) https://www.partnership.com/blog/post/freight-class-explained-demystifying-density
- Stowability: How efficiently does your product fill the available space in a trailer? In other words, are you “maximizing your cube”? For example, grain will fill every bit of available space in a container, but a car leaves a lot of empty space around it.
- Ease of handling: Are your products of consistent size? Are they fastened to the pallet to make it simple for forklift operators and drivers to handle them? Are your pallets properly wrapped and stacked?
- Liability: It is important to check whether you need cargo insurance in addition to the basic legal liability of your carrier (generally $100.000 per FTL). Remember that ocean and air carriers have different liabilities, so consult your freight forwarder for guidance to ensure you are aware of your options.
3. How often and how much you transport
The volume and frequency of your shipments can have an impact on your freight costs. To get the better deal, it is essential to keep your communication open and to make sure that everything is known prior to hiring. Regarding volume, here’s what you need to handle:
- Rate leverage: That is to say that you can negotiate better rates with carriers because you have a large volume of shipments. To find out more about the concept of rate leverage, check out the people at investopedia: (LINK) https://www.investopedia.com/terms/l/leverageratio.asp
- Lower pick up and drop off costs: This means that you can save money on shipping costs because you are consolidating shipments and only paying for one pick up and one drop off.
- Higher carrier revenue: Therefore that carriers will be more likely to work with you because you are offering them a steady stream of business.
- Volume commitments/guarantees: Hence that you are promising to move a certain amount of volume over a certain period of time. This can help you get better rates from carriers.
In regards to frequency, make sure you have all this information close, so you can solve it quickly:
- Better planning and improved performance: This means using your resources efficiently, which leads to improved performance, such as getting more work done in less time.
- Improved labor and equipment usage: That is to say that you are using your workers and equipment more effectively.
Overall, these three things can lead to improved efficiency and profitability.
4. Consolidation and cross-docking
The two strategies mentioned above can help reduce freight rates, but there is one major caveat: consolidation and cross docking are typically handled well by carriers, but importers tend to struggle with them.
In order to see real results, work closely with your carrier or logistics partner (especially if they have warehousing capacity to create a distribution center). You will likely pay for the service, but it will be worth it in the end.
5. Appointments
It may be tempting to have appointments with your truckers, such as requiring them to arrive at 9 am. However, appointments mean that carriers will have to wait for their loads to be ready, which will cost them money. As a result, you may end up paying extra for their services.
If you can give drivers more flexibility, you can avoid paying appointment fees or surcharges.
The best way to reduce your transportation costs is to communicate openly and honestly with your logistics partner or carrier. Transparency and flexibility are essential during these uncertain market conditions.
Hiring an asset based carrier for your predictable loads is a straightforward process. However, for last-minute shipping needs, sudden cancellations, unexpected orders, or orders that are not within the same time frame as usual, an asset based carrier may not be the best option to hire, as they will not be sitting around waiting for your call. Must of the time they are going to be driving, moving someone else load and far away from your location.
This is where freight broker’s flexibility will come in handy.
Conclusion
Freight brokers can save you time and money when searching for last-minute shipping and non-recurring loads by having access to the open market and by having strong relationships with local trucking companies.
There are several benefits to using a broker, including lower personnel expenses as there is no salary to pay, no need to pay for additional software and licenses, and savings on space, equipment, and training. The biggest advantage is that you only have to pay when the job is done.
It is similar to having a whole team at your service, ready to assist you in minimizing the risk of shipping your cargo, saving you the time it takes to search, evaluate, select, ship, monitor, supervise, and handle all of the documentation required for a successful shipment.
Carriers and brokers are both essential for optimizing logistics operations, and neither is superior to the other. They offer complementary services that can be tailored to your specific shipping requirements base on your time constraints, your shipping consistency and load predictability.