How to Reduce Freight Costs

Freight costs eat into the bottom line of almost every company. Every dollar spent on freight can equal $20 or more in sales, so if your company can save $100,000 in freight charges that can equate to $2 million in sales.

What with fuel costs on the rise and the economy starting to rebound, shippers will undoubtedly see freight cost increases in the months ahead. But there IS something you can do about it.

If you haven’t re-bid your freight business for a while, now is the time to do so. Here are a few tips on what you should do:

Step #1: Develop a strategy. What are you going for? Lower rates? Better service? How do you know if your rates are already low, or if there are opportunities to reduce costs? Many shippers have been surprised by a “backfire” when they negotiate rates that are already competitive as responding carriers (even the ones they already use) come back to them with higher, not lower rates. Be careful with this — it’s a good idea to do some freight benchmarking before starting out to make sure you don’t have problems later (by the way, we do provide this service).

Step #2: Weigh what’s important to you. Do you care more about service or price? How much more are you willing to pay for premium service? Do you have any flexibility in shipment transit times? Can you re-load inbound trucks for outbound shipments? These are a few of the many factors that will influence your pricing and service combination.

Step #3: Gather information. Carriers will want to know where your shipments originate and where they go. They’ll also want to know what products and commodities you ship, their densities, shipment weights, and shipment dates among other things. Carriers can tell you what they will need from you.

Step #4: Select carriers. You’ll want to find carriers that not only can do the job, but that also need the kind of business you have to offer. All carriers have lane imbalances where they need more freight moving between certain points in order to get their trucks, airplanes, and ships back to where they need to be. If you have the kind of business they want you’ll stand a better chance of getting favorable rates.

Step #5: Standardize your RFP. Your Request for Proposal should include a standardized format for the carriers to follow when responding with their price and service offerings. Without this you’ll be facing a nightmare of complex calculations before you’ll be able to compare the various responses.

Step #6: Evaluate the bid responses. In this step you’ll determine the economic benefits of making a shift to new carriers or of establishing new pricing with existing carriers. You’re going for the bottom line here, and the savings you achieve will go right to your company’s profits.

Step #7: Establish your rate agreements. Once you decide on a new plan, you’ll want to set up appropriate rate agreements with carriers. If you haven’t done this before, you should seek expert advice.

Step #8: Prepare your routing guides. Now it’s time to publish your new plan in shipment routing guides that can be sent to your shipping departments, your vendors, and even your customers. Make sure that they are clear and that they provide instructions for users.

Step #9: Become a good customer for the carriers. Offer to pay freight bills very promptly in return for lower rates and higher discounts. Advise carriers of your pending shipments as early as possible. Be flexible with ship dates whenever you can. Work with the carriers to increase their productivity; consider getting the carriers in and out quickly, reduce the time to load and unload, and ask the carriers what you can do to be a better customer.

Step #10: Monitor results. You’ll never know if you got there if you don’t measure where you are. In this step you’ll want to get feedback from others regarding their satisfaction with the carriers and your shipping programs, and you’ll want to measure how much your costs have changed. It’s best to set up this step early on, even before preparing your RFP.

If you use an outside consulting service to help you with this process, make sure that the firm is licensed by the Federal Motor Carrier Safety Administration (FMCSA). Anyone you hire to negotiate rates or to arrange transportation on your behalf must have a valid property broker license (we do).

Also, if you use a consultant, determine how the consultant will be paid. Basing fees on a gain-sharing, or percentage of savings option is a good approach since you only pay if the consultant saves you money (in some cases a small implementation fee applies). In other cases the consultant, if licensed to do so, can be paid directly by the carriers you use, in the same way that travel agents earn commissions from airlines. This is a normal and acceptable practice that reduces the payment cycle time to the carriers as opposed to re-billing the shipper, and often results in better pricing for the shipper.

We have the experience, knowledge, and tools required to reduce freight charges in your company, and savings of 15% or more are common. Take a few moments to browse through our site to read about the services we offer, then fill out the contact form and send it to us. There is NO obligation and no salesman will contact you unless you so request.

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