A Pragmatic Guide To Managing Transportation Costs …the keys to success may not be what you think

September 16th, 2013 - by andrewh

By Mike Challman,  Vice President, North American Operations

Let’s try a quick word association.  What comes to mind when you hear “transportation costs”? For many of you, the immediate thought will be “carrier rates”.  It’s a valid response, but; unfortunately, it is also one that can reveal a limited point of view about the best way to manage those costs.

For many shippers, the go-to strategy to reduce or control transportation costs is to continually pursue carrier rate reductions while ignoring other, equally important, aspects of the equation.  Outlined below are a few guideposts to provide some food for thought about how you can positively influence carrier rates, and, in turn, more effectively manage your transportation costs in ways that go beyond just trying to squeeze a few more cents out of your carriers.

#1: Carriers Are Entitled To A Fair Rate of Return On The Service They Provide – The success of your transportation network relies on good carriers.  While you do not want to over pay to ensure access to high-quality capacity, you must remain competitive in the market. Do you know where your rates stand relative to others with similar shipments?

#2:  You Can Usually Find a Cheaper Carrier… But You Risk Paying For It In Other Ways – A lower line haul rate doesn’t always mean less total cost.  You might pay more in accessorial costs or, even worse, you may be faced with degraded service performance, increased claims activity and more customer complaints. Do you have a carrier management program in place that addresses all areas of potential carrier cost?

#3:  Sometimes The Main Reason Your Carrier Rates Are Going Up Is… You – A carrier will consider multiple factors when assessing whether or not you are a ‘good’ shipper.  That includes ease of operation at pickup and delivery points, dependable and accurate information as well as the timeliness and accuracy of carrier payment. When is the last time you evaluated your supply chain to find areas for improvement?

#4:  Not All Of Your Transportation Costs Are Controllable By The Carrier – In fact, most issues in your network are related to forces other than carriers.  A carrier influences transportation costs only when in possession of your shipment.  Before and after that timeframe, you must look at other factors. Do you know the impact on overall cost resulting from activities at your ship locations?  From decisions made by Sales or Customer Service?  From the expectations of your customers?

#5:  A Well-Managed Transportation Network Benefits Everyone – When your entire network operates efficiently, all parties enjoy the benefits – particularly you and your customers.  And from your carriers’ perspective, you may find a greater openness to rate negotiations if you have a reputation for keeping their trucks moving.  Are you looking at the whole picture when you consider ways to improve your transportation costs?

 Bottom Line:  Address the source of the issue, not just the most apparent symptom.

While carrier rates are often at the top of our mind when considering transportation cost issues, higher rates can be a response to other issues and not the root cause.  Shippers need comprehensive and effective carrier program management (CPM) to measure, identify, discuss and solve all of the issues that can impact carrier rates.

A successful CPM will develop strong relationships with the best carriers, effectively address carrier performance issues quickly when they do arise, and ensure a productive and continuing dialogue to identify all of the areas that are impacting a carrier’s ability to provide the best possible service at a competitive rate.  In the end, your best word association response to “transportation costs” can be “well managed”.

ChemLogix offers a variety of managed services in conducting freight benchmarks and developing an effective CPM.  To find out more, refer to http://www.clxlogistics.com/services/managed-services/or contact Mike Challman at mchallman@chemlogix.com.

 

 

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