Check out our first in a series of videos on important logistics topics of interest to chemical shippers.
Stephen Hamilton, Managing Director of ChemLogix Global, discusses how BulkTainer ISO tanks offer enhanced safety and security for shipping chemicals by taking chemicals off roadways and reducing the incidence of accidents. Click Here.
Why? Fuel surcharge formulas are based on a loaded mile formula. All empty miles run between the terminal and your loading site, such as miles from the carrier’s last delivery to you or miles to the terminal for equipment repairs or tank cleaning, are not included in the fuel surcharge calculation. As a result, the carrier has added fuel costs for those empty miles. Sure, when you contracted with the carriers, they built in some fuel recovery number for empty miles. However, recent fuel cost increases (the time from when you negotiated your contracts until now) are not included in those calculations.
What does this mean to you? Let’s review a few examples. Say, during the time of your last contract negotiation, fuel costs increased by $1.50/gallon. What added cost does that represent? The average truckload carrier – either dry van or bulk – wants a minimum per-truck revenue of $200K to $225K. Assuming a modest 10% empty mile to loaded mile ratio for TL van freight and 20% for bulk freight, unrecovered fuel costs is $2,769 for dry van carriers and $5,538 for bulk truck carriers. (Click View Graph below for more)
How do you effectively negotiate during any price increase discussion? Know your carriers empty mile ratio and average truck miles per gallon before you meet. Also, look back at your current contract effective date. Knowing what the fuel price was during your last contract renewal, along with your carrier’s empty mile ratio and average MPG/truck, will enable you to calculate your fuel cost impact on your carriers. You can also be a good partner to your carriers by putting actions in place to minimize empty miles and fuel waste. As example, initiate a no idle rule at your plant during wait time to load.
Each company must look to its strengths to answer this question for itself. But the answer is likely to be yes ….to some extent.
Two questions help to begin to frame the answer are: 1) what expertise and capabilities should we have in-house based on our size and the criticality for each logistics function? And 2) what really are our strengths today for each function and each mode and are any gaps best filled by Outsourcing?
Smaller companies with less than 5-10,000 shipments per year will often Outsource the full logistics function to a 3rd party provider (3PL). It simply is not cost efficient to have experts across all functions like procurement, execution, payment, regulatory compliance, etc. and across all modes from truck to rail to ocean. For medium size, and even large shippers the answer often comes down to looking at its operation mode-by-mode. Some very large domestic shippers who only do several thousand international shipments per year recognize that the complexities of those shipments require an understanding of markets, processes, regulations, etc. that is better handled by experts who do that for many shippers. Companies that may have large packaged truck operations but smaller bulk truck needs, or vice versa, will often carve out that mode for Outsource experts to manage. The same is true across all truck, rail, and intermodal operations.
An especially useful area of Outsourcing for companies of all sizes can be Freight Procurement. Outsource providers bring: 1) purchasing power, 2) market expertise, and 3) systems and tools that a single shipper cannot hope to match. 3PLs have staff that is constantly in the market both for themselves and for their Freight Procurement customers. This allows them to see changing trends in price and capacity across regions. This valuable knowledge is coupled with the use of automated tools that create competition for the shipper and often allow carriers to see how their Bids are stacking up. This ensures the best matching of carrier capacities/strategies with the needs/strategies of the shippers. These Outsource Procurement engagements often start with a Benchmarking exercise that highlights the potential of having an automated bid done in conjunction with the Outsource partner.
The logistics process with the most hassles, Freight Audit & Payment, is also often Outsourced to save internal staff resources. Especially coupled with a Transportation Management System the process can be automated and exceptions, the bane of the process, significantly reduced.
For processes/functions/expertise that makes sense to keep in-house for medium and especially large shippers there is still an Outsource decision to make…..where do we get the support systems needed by our staff for procurement, for shipment execution (Transportation Management Systems – TMS), for global trade management, etc. Some 3PLs, such as CLX, use these systems as well as sell and implement them with larger shippers. The very good news here is that the seller/implementer is fully vested in ensuring a good product that is well maintained.
As with many questions in Logistics, the answer to “Should we Outsource?” comes down to “it depends”. But I think you will find that in most cases the decision will not be to Outsource or not, but rather, what functions, processes, and modes does it make sense to Outsource.
Chemical shippers contract 3PLs to gain additional resources, technology and assets unavailable in their own logistic departments to optimize and automate supply chain operations. More than vendors who merely provide certain contract services, 3PLs should serve as long-term partners in helping customers effectively manage their supply chain processes. Here are five key benefits that chemical shippers should derive from their business relationship with a 3PL:
1. Ongoing cost reduction/containment strategies
Going beyond the terms of a contract to manage specific freight activities on a monthly or cost-per-transaction basis, 3PLs should proactively present cost management ideas as part of their services. After becoming familiar with customer operations, 3PLs should be able to identify areas in the supply chain where costs can be contained. Ideas can range from optimizing weight per shipment through load consolidation, spot bidding on more cost effective carrier lanes or even initiating a freight reduction project to reduce inbound transportation costs.
2.Access to best-in-class transportation management technology
Incorporating the latest transportation management technology to optimize supply chain operations was typically not an option for small- to mid-size shippers who could not afford the upfront investment or ongoing maintenance. 3PLs now offer best-in-class transportation management technology that does not require large investments in hardware, software or even additional personnel. On demand transportation management systems can be connected to customers’ existing ERP systems in as little as 6 months. Customers should seek additional capabilities such as online RFQ tools and global order tracking. Most recently, ChemLogix began offering its customers an iPhone® application as part of its TMS capabilities that gives users mobile access to shipment data on iPhones.
3. Ensure Orderly Review Process
Rather than wait for problems to arise, a 3PL should lead a periodic review of supply chain processes with appropriate personnel to discuss new transportation solutions, specific cost reduction ideas, service levels, and any issues that the client may have with current operations. By reviewing data pertinent to different supply chain elements such as on-time deliveries, costs, customer service issues, etc., the 3PL can discuss which objectives have been met, if there are any problem areas and set new goals for the next operating period.
4. On-line Visibility to Freight Activity
In addition to automating many processes, a 3PL should give customers online, real-time visibility to supply chain operations including freight, invoices, routing guides, carrier service records and more. With visibility to in-transit data, shippers can determine at any point during the supply chain process if shipments will be delivered on time and when to notify plants and customers of impending deliveries and shipments. Should shipments be late, automatic email alerts can sent to customer service reps so that they can proactively make arrangements with their own customers.
5. Support in Boardroom Discusses
Getting the funds from executives to implement and/or expand transportation services and systems sometimes takes the assistance of 3PLs who can provide detailed explanations of the long-term benefits of specific supply chain strategies. Experienced in providing transportation solutions to customers in the same industry but with varying scenarios, 3PLs can readily provide informed answers to the questions posed by executives and give examples of the successes and pitfalls associated with certain actions. 3PLs, essentially, become a part of the logistics team when presenting ideas and updates to the board room.