Thomas 7/30/19 | A Logistics Expert's Guide to Saving on Shipping Expenses - Without Launching an RFQ
A freight RFQ is expensive to manage and takes between three to six months to execute from start to finish. If you’re already happy with the service you have, why go through the time and effort of launching an RFQ when you can start to save today?
Regardless of whether your supply chain is global or domestic, or B2C or B2B, freight savings opportunities abound.
Effective freight savings concepts are organized into four areas:
1. Procurement: Buying actions are easiest to implement and produce quick wins.
Be a regular client of a select number of vendors. Your core carriers may offer cost savings options; a later pick-up time, a change in the day of the week, or slower transit time may allow the carrier to provide you with cost reduction opportunities. Consolidating the number of vendors used and shipping with them consistently also means you have go-to resources ready to handle anything unexpected.
Include a freight broker or freight forwarder in your carrier mix and assign a certain percentage of activity to them as part of the consolidation process. Your company will benefit from market-level pricing when rates decline. A freight forwarder or broker can also be useful protection when shipping capacity is tight and carriers decline or delay shipments with low contracted rates.
Use a combination of buying methods, like utilizing contractual rates for your regular shipping lanes and spot quotes for project type moves, volume spikes, and new lanes. Diversity in buying methods will provide the most savings for the least effort.
Purchase your goods with freight costs excluded from the product pricing. Being in charge of the transportation of your inbound goods lowers costs and puts you in charge of the service you receive.
2. Shipment Planning: Analyze overall shipping activity to find mode, size, and process improvements.
Choose the right mode and shipment size based on cargo urgency and value. A 40-foot ocean container is twice the size of a 20-foot container but costs only 20% more, so fill a 40-foot container and save big. A 40-foot High Cube container is often the same price as a 40-foot standard container but holds an extra 10% of cargo by volume.
LCL and LTL shipments can be combined into full loads, saving money and reducing cargo handling. For international shipments, air freight is often cost-effective if the shipment is small, or the air freight expense is less than 15% of the value of the goods.
Consolidate last-mile deliveries at cross docks or warehouses near your customers. By consolidating at a hub and converting parcels to pallets, or LTL shipments to FTL, you’ll save substantially on delivery costs. You will also reduce your company’s carbon footprint as this requires fewer delivery trucks.
Optimize the packaging of your goods for transportation. IKEA is a master of this technique. The product needs to be secure, but there’s no need to pay to transport air. If retail packaging is a necessity, consider having the goods repacked at the last mile delivery hub.
3. Productivity: Improve efficiency with automation or outsourcing
Utilize new logistics software solutions. Many of these tools, which are inexpensive SaaS offerings, improve shipment planning and analysis and are worth exploring to see how they could potentially benefit your business. Your IT department, personal network, and industry associations are good places to ask for referrals regarding the best new technology.
Automate or outsource freight payment activities to reduce both labor costs and errors. If you elect to outsource freight payment, the provider may include a freight audit function that pays for itself. Alternatively, opt for electronic invoicing with your company’s core carriers and forwarder or brokers. This is fairly standard today and can include electronic delivery confirmations. Keep in mind the need for adequate information security commitments.
4. Process Improvements: Ruthlessly attack and eliminate unnecessary expenses
Eliminate expenses like damage claims, delivery performance penalties, and demurrage and detention invoices. Removing these unfortunate and unnecessary charges that plague many companies can produce significant savings.
Approach overall expense reduction by gathering data on these charges and analyze the circumstances generating waste. For damage claims and delivery penalties, one particular product or carrier may be the main culprit; the solution may mean paying a bit more for better packaging or a higher quality transportation service.
Address demurrage and detention invoices through advance planning and existing contract renegotiation. In recent years, demurrage and detention invoices on import shipments for many companies have grown drastically due to port congestion issues in LA/Long Beach and the trucker shortage. To reduce or eliminate demurrage charged at a port, negotiate extended free time with your ocean carriers and forwarders. Have your customs broker pre-clear the cargo and always have a backup trucker in case your primary is unable to pick up the container.
Reduce or prevent detention charges by negotiating with your truckers for more time for live loads and unloads. Eliminate the possibility of oversight by arranging for your WMS software to automatically email the carrier when a container is empty and ready for pick up.
Treat these claims, penalties, and demurrage or detention expenses by treating the problem like a quality defect. Measure and report the spend, then task the transportation or logistics teams with elimination using a plan - do - check - act quality corrective action process, with accountability for specific improvements. Engaging the front line and then charting the problem and progress will help drive down these costs.
Save Money While Avoiding A Freight RFQ
These techniques can produce substantial savings without the time and expense of a freight RFP or the potential disruption of carrier changes. You’ll have improved your processes for the long term – and you get to keep the carriers you’re happy with.