Tips for Managing LTL Costs
A recent analysis by Logistics Management reported widespread expectations for a LTL rate increase this year in the range of two to four percent. The increase is due in part to a seeming “perfect storm” of events converging within the industry: tightened capacity, a shortage of drivers, and sustained high fuel prices.
But lest shippers think they have no alternative but to resign themselves to higher LTL costs, there are, in fact, several ways to not only control LTL cost increases, but to achieve an actual price reduction.
- Shop Around. You are well aware of what your business pays in transportation costs, but wouldn’t it be helpful to know what a competitor would charge for the same services? Of course there’s a lot more to a carrier/shipper relationship than bottom line costs, but if it seems that your carrier is inordinately expensive, it might be worthwhile to dig a little further to find out if those higher costs are warranted.
- Think Before You Sign. While conventional wisdom might be to lock in a good rate for an extended period of time, current practice is showing that shorter, one-year contracts can result in significant savings. As reported in DC Velocity, a 2012 study by researchers at Iowa State University found that “shippers who rebid their business regularly achieved rate reductions of $25.17 per load compared with shippers who rarely or never utilized this method.” In addition, the study found the savings achieved during the initial contract rebid, tended to be “freshened” with every contract renewal. In all, shippers reported an average savings of 4.4 percent by rebidding on an annual basis.
- Not all Carriers Can Reach Canada. Does your carrier offer regular service to your destination, or are you being charged because “extra” service needs to be contracted in order to accommodate your needs? This is especially important when your LTL shipment requires a border crossing, and delivery to Canada. You want to be sure that your carrier can not only provide seamless service to the Canadian market, but that you won’t be surprised with unexpected shipping and compliance fees.
- Build the biggest shipments possible. A basic tenet of LTL shipping is the smaller the size of the shipment, the greater the cost. But, by working with a transportation provider to develop consolidation and distribution solutions, a business can increase shipment size, and lower per-unit costs. A business may be able to build larger shipments by delaying pickups, for example, or a carrier may be able to convert multiple LTL shipments into a full truckload shipment.
- Packaging Matters. Because LTL shipments are handled multiple times during the transit cycle, it is important to package materials in a way that can facilitate loading and unloaded – usually through palletization or crating. However, in some instances packaging choices can affect pricing. In addition, because LTL pricing is based on density, it is essential to take a “less is more” approach, when practical, to packaging. For example, Staples is in the process of introducing an “on demand packaging,” solution, in which packaging can be customized to fit precise needs. Staples expects to achieve a 20 percent savings on corrugated costs, and a 60 percent reduction in use of air pillows.
- Get control of your inbound costs. Many shippers are surprised to learn that their suppliers use freight as a profit center, or that they are not particularly diligent in trying to negotiate favorable terms. Taking charge of supplier freight costs can be a significant source of savings. Wal-Mart made headlines in 2010 when it began requiring suppliers to transport materials on Wal-Mart trucks, and insisted on price reductions of as much as six percent to cover the new arrangement.
It’s hard to browse through a logistics or transportation newsletter or website and not read about inevitable rate increases. But with a little legwork and strategic thinking, you can reduce your LTL costs, and improve the overall efficiency of your supply chain.