Strategies For Freight Cost Optimization
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Freight Cost Optimization
The way the freight is shipped and its associated costs, are a fixed entity and cannot be changed, is merely and assumption and an illusion in the shipper’s perceptions. The fact that something has always been done a certain way for long, doesn’t mean that it cannot be challenged. There are several ways to reduce freight costs. The changes can be implemented right away.
A new perspective and a smart approach cuts down on costs and opens the door to savings, almost as high as 50% of usual business freight charges.
Some methods are simplistic, like offering night-time freight pick-ups. Listed below are 12 specific suggestions that help in freight cost optimization, with an estimation of savings created.
1. Steady Lane Volume
If there is regular work for the carrier every day, with a regular flow of freight in the same lane, then those backhauls can be marketed to build out a customized network. This resultantly cuts down on costs as less needs to be paid, since the carrier efficiency is high. The capacity is tight these days due to the COVID-19 Pandemic. Hence, the carriers focus on moving the freight of the customers/ people, who are loyal and offer reliable freight volumes. Hence building and working with a regular, steady lane volume, helps to optimize costs.
2. Shipping on Off-Peak Days
Avoiding the peak days, and shipping a day later or earlier to the peak days, often yield measurable savings. Friday is an off-peak day for shipping consumer goods because most customers get their products in stores by Thursday, so that the product can be put on shelf on Friday, and be made ready for sale during the weekend. Mondays too are low-volume days, when carriers are on the look-out for freight. However, much depends on the cargo. For example, canned goods have a bigger survival window than the fresh goods. Shipping on off-peak days is a great option for shippers of non-consumer type products. The off-peak day is a cost effective method that shippers can opt for.
3. Consolidation Program For Smaller Shipments
Retail consolidation is a magic carpet for all concerned parties and a great option. Combining LTL shipments with other nearby companies shipping to the same mass retailers and grocery chains for direct delivery, is a winning solution for all. Even larger shippers like Colgate and CVS have got into Retail Consolidation. Suppliers pay only for their share of a less-expensive TL shipment.
Retailers receive the loads on time. The same volume of goods are delivered in fewer, fuller loads, to keep the dock bays open, and labor costs are cut down. Finding suitable shipper-partners is important. Local Chambers of Commerce or other business organizations are one place where shipper- partners can be found. Also, working with a 3PL, with a freight consolidation program that serves multiple companies, shipping to the same retail customers, is another advantageous option.
4. Developing Relationships As Opposed to Serial Rate Shopping
Severing relationship with old carriers and starting fresh with new carriers every year is not the best approach, even if it is done to show the management that steps towards reducing freight costs are being taken. Frequently starting fresh with new carriers is the freight equivalent of “speed dating”. Transportation management advantages with bottom line implications are created only when shippers develop more strategic, long-term carrier relationships.
Long-term contracts allow the carriers time to establish other customers in the area, and thus create a more efficient network with minimal deadhead miles. A carrier that maximizes assets earns more profits and is a profitable option as it offers better rates. Another advantage is that a longer-term contract, like 3 years, also locks in the offered rate for the contract period. This protects the shipper from market fluctuation and inflation. And a carrier committed to long-term contract provides better services, which is a significant impact in the long run.
5. Increasing Delivery Lead Times.
Introduction of planning in the supply chain helps to maximize operations. Advance notice to the carrier about future loads, enables them to maximize assets, including trucks, drivers and warehousing space. Simply put, an advance shipping notice allows a carrier to organize the assets and resources. Paying for a trailer sitting idle at someone’s facility, waiting to load up, is one of the biggest costs for carriers.
A good and structured planning allows carriers to reduce those costs. Planning can be improved and implemented on all segments of the supply chain, like pick up, staging, live-loading. The more in advance the notice is given, the more time the carriers get to organize things behind the scenes, and increase efficiency, and thus offer a better price.
6. Dunnage Reduction
Innumerable products require packaging that needs air bags, strapping, blocking and bracing to prevent the item from knocking together during transportation, specially so in water transport and long-distance truck rides. Often shippers are known to go overboard trying to protect a product. Skinning down on the package dunnage helps to reduce shipping costs.
Carriers can help reduce the dunnage, without increasing damage. Seeking out the advice from Carriers on dunnage reduction is advisable. Shipping in just the right sized box cuts down on the box weight and dunnage. Dimensional weight pricing strategies from carriers helps shippers to achieve the requisite right size packaging.
7. Quick Loading
Carriers go by an assumed 2-hour load window when developing pricing. This load window time duration has a significant impact on the price. The carriers are inclined to work with the shipper that has a lower price and a lower load window time. Consistent load time performance help favorable load times to get set into a rate for Shippers. Hence chasing down assessorial charges, which is a huge time drain, can be avoided. Efficient management of operations saves money, and also creates a good creditability status for Shippers, thereby increasing their popularity amongst the Carriers.
8. Offer night pick-ups.
Night pick-ups are quite an advantage. Offering pick-up times after most other shippers have closed the dock, between 6 and 12 p.m., gives carriers an opportunity to make the load into a backhaul. A carrier might turn down a load that is requested for a mid-afternoon pick-up because it conflicts with another run. However, later or night pick-up allows the Carrier to make the delivery and fill his backhaul with freight. This helps the carrier to maximize utilization of assets, especially on longer hauls, and brings down costs. It works to everyone’s advantage.
9. Minimizing The Number of Pallet Spaces For LTL Shipping
Lowering the number of pallet spaces helps in bringing down costs, and improves efficiency to get more cargo packed onto a pallet, and into a trailer. Optimizing the cube of a product, stacking the product to take fewer pallet spots, boxing it differently, are all of great benefit. If a small component is put in a large box, then not many boxes can be put on a pallet. On the contrary, having them in small boxes can help in loading the pallet fully, and save pallet spaces. In building efficient pallets, the recommendation depends on the type of product being shipped.
10. Increasing the Volume and Reducing The Frequency of Shipping
Shipping larger orders helps to optimize time and resources and brings down costs. Hence, encouraging customers to take larger orders is a good practice. It is much cheaper to ship six pallets at once than shipping two pallets every two days.
However, retailers often look for smaller shipments. Creating incentives to take more inventory, beyond the regular need, helps to strike deals with larger orders. Offering to share freight savings with the retailer can be used as an incentive. Another incentive can be offering a Vendor Managed Inventory where the retailer is not charged for the item, till it is on the shelf.
11. Involving Logistics Early in Decisions Regarding Product Design, Packaging, and Carton Selection.
Product Design, Packaging, and Carton Selection, are all things that impact the trailer’s ability to max out its cube. Packaging is the smallest cost segment in the supply chain. It comprises of less than 10% of each supply chain dollar. In contrast, warehousing is about 25% of the cost, and transportation is 60% of the cost.
Hence, it is advisable to design packaging, and inspect carton sizes with freight efficiency in mind. Marketers in the current scenario, do not have this mindset. Also, most companies do not prioritize packaging optimization, and do not realize its impact on freight rates. Efficient packaging is a great cost optimization option.
12. Outsourcing Transport department/ 3PL
Freight management is not a core competency for smaller companies. Hiring, training and maintaining a transportation staff, and keeping up with systems requirements, is an expensive and time-consuming practice.
Adding to the list is appointing, managing and retaining a driver force. Under the circumstances, outsourcing freight management reduces the pressures, as it transfers the financial burden of staffing and capital expenditures to another enterprise. It also opens the door to innovative solutions that carriers which are on-the-go, should be suggesting. When carriers can buy things, like fuel, in bulk, take decisions independently, they operate more efficiently. It is a good idea to explore outsourcing freight to outside experts.
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