3 Ways to Reduce Your LTL Freight Costs in 2017
by Ryan Heath, Insight Sourcing Group’s transportation sourcing expert
If one of your goals for 2017 is reducing your LTL freight spend, and your plan for accomplishing it is issuing a RFP in hopes that applying competitive pressure to your incumbent carriers will result in them reducing rates, you may want to reassess your situation. “Pricing discipline” has been a rallying cry for LTL carriers for 5+ years now after 2010’s price war left many carriers with an uphill climb back to acceptable profitability levels. So when your sales rep for your favorite carrier takes your request for lower rates back to his or her pricing group, the rep is more likely to come back with a price increase than a decrease.
So what are cost-conscious procurement and supply chain professionals to do?
- Pursue carrier flexibility. Bidding out your LTL business every year is a good idea, aligning your freight with the carriers that find it most attractive at any point in time. However, this presumes some carrier flexibility. So start educating your team on carrier capabilities before your RFP. Start challenging carrier shibboleths in your organization – “That carrier is terrible; they are slow and they always damage freight! We can’t afford to move away from our current carrier.” – with data and facts about performance – “Actually, their transit times are the same or better in most of our shipping lanes, and their claims for damages look about the same.” Because you may have to change carriers to save money.
- Make sure you are utilizing regional carriers to the fullest extent possible. Regional carriers typically offer a lower price point with transit times often equal to or faster than national carriers. Using a national carrier on regional shipments typically leaves money on the table. At Insight Sourcing Group, we have seen cost gaps of 30% or more between competitive regional and national carriers. So make sure you are taking full advantage of regional carrier offerings.
- Cost-optimize shipment routing. First of all, you should have more than one LTL carrier. If you don’t, you are likely not taking advantage of the fact that carriers tend to have some geographical pockets that are more competitive than others. If you just have one carrier, you will never know.
But if you have multiple carriers, you must determine how to best use each. The easiest way to cost-optimize routing is to utilize a technology solution into which you can load all of your pricing agreements, and it shows you all pricing and transit time options on a shipment by shipment basis. All that remains is instilling the discipline of tendering shipments to the lowest cost approved carrier.
Many shippers, however, do not have technology like this, so a routing guide is developed that tells a shipper which carrier to use based on shipment origin and destination geography. However, in order to generate the routing guide, a comparison between carriers needs to be conducted that takes into account the varied LTL pricing factors: Tariff Discounts, Minimum Charges, FAKs, Fuel Surcharges, Accessorials, and Transit Times. A robust comparison, which requires a deep dive into historical data, is needed for a robust routing guide. Many shippers’ routing guides only account for Tariff Discounts, not realizing how often the best priced carrier does not have the best discount. Judging the true low-cost option is only possible when you have a solid handle on your shipping patterns. A recent client discovered they could reduce costs 8% by making some simple routing adjustments.
The key takeaway here: spending the time to understand your shipping profile and modeling your carriers’ pricing structures against that profile can lead to significant cost reduction.
For more information on how to reduce your freight costs, please contact us.