By Mike Challman, ChemLogix, LLC
Vice President, North American Operations
ChemLogix.com
When was the last time you analyzed your actual carrier costs? If you haven’t reviewed your carrier activity in the past 12 to 18 months, there’s a good chance your costs are above what you’ve planned, above the rates listed in your routing guide and, quite possibly, above competitive market rates.
Over the past year or more, virtually every shipper has begun to feel the pinch of increasingly limited carrier capacity in the market, and all indications are that this scarcity may only get worse as the economy continues to improve. Legislative actions and plans (CSA 2010, Hours of Service and other potential regulatory changes), a growing driver shortage and a reduction of fleet size by many carriers during the Great Recession are just a few of the issues that have led to a premium being placed on quality carrier capacity. As a result, many shippers are experiencing increased freight costs but may not realize its full extent. It’s easy to see the impact of direct rate increases from a carrier, but not so easy to recognize the impact of a greater incidence of spot rates or having to reach deeper into your routing guide to find a carrier who will move your load at their contracted rate. And to top it off, continued high fuel costs mean steep fuel surcharges from carriers. As a result of all of this, you may be surprised to learn that your freight costs are much higher than you thought and represent a more significant percentage of the delivered price of your products.
Your procurement department is confident they negotiated good rates, and that may be entirely true, so why worry? To remain competitive and understand actual transportation costs, shippers need to closely monitor the activity in their own networks to get an accurate picture of how they are buying in the market. The transportation market is a constantly moving target, and much can change in very short periods. As well, if your carrier selection decisions are made at the site level, even with a routing guide in hand, there is no guarantee that those decisions are consistently cost-effective. By reviewing shipment history, carrier assignments and freight invoices, a benchmark study will reveal what you actually paid for your transportation activities. But knowing what you spent is only half of the answer you need; you also need to compare your buying to that of other similar shippers. By relating your shipment data to market rates for your specific modes, lanes and geographic regions, a benchmark study can determine if your rates are best in class, market competitive or above the market.
Through this analysis, the benchmark study can provide actionable insights on the competitiveness of your company’s actual freight rates. It can also serve as a basis to negotiate significant improvements to your carrier agreements where they are most needed, while at the same time give you a view of good rates that you need to maintain at their current level. Finally, the study can help you to control and standardize accessorial charges and fuel surcharges across your carrier base.
Sounds like a worthwhile exercise, can’t we do it ourselves? Compiling and analyzing this type of study requires a significant investment of time and resources, as well as access to current and accurate market freight rates and related information to which most shippers simply don’t have ready access. That’s where a knowledgeable third party logistics provider (3PL) such as Chemlogix becomes invaluable. Possessing up-to-date market intelligence, an established carrier network and an experienced team of transportation professionals focused on this work, a 3PL that is familiar with your industry can perform a thorough benchmark study. A non-asset 3PL offers the added advantage of being asset-neutral, meaning you get the best possible carrier solution and not one that favors the provider’s own trucks. And all of this can be done faster and more cost effectively than most in-house logistic departments who don’t have the available time, resources or experience for this endeavor.
Using benchmark results, 3PLs can take you to the next step in negotiating rates with carriers for service in specific lanes and regions and identifying new sources to replace those that have priced themselves too high for your business. To find out more about how benchmarking can provide you with the tools and analysis to mitigate rising carrier costs, contact us at information@chemlogix.com or visit our web site at: http://www.chemlogix.com/solutions/freight-procurement.