Posts Tagged ‘freight savings’

Did you know the Fuel Surcharge you pay on every load doesn’t cover the out-of -pocket costs of higher fuel cost to your carriers?

Thursday, March 24th, 2011

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.

 

Have freight rates bottomed out yet?

Monday, September 28th, 2009

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Have transportation freight rates bottomed out yet? This has been one of the two most frequently asked client questions this summer – along with “is it too late to bid my freight out to take advantage of recent market conditions”.

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Although no one has a crystal ball to definitively answer the first question, ChemLogix’s market data since May 09 implies the market has probably bottomed out by late summer.  The second question can be answered with a simple answer – yes.  The time is still ripe to bid freight rates today but…don’t wait too long or you will miss this year’s golden opportunity to generate freight rate savings.

ChemLogix has conducted numerous freight benchmark Cyclops hd studies and bids this summer. Our studies have shown an average freight savings opportunity of between 10-25% of combined line haul and fuel surcharge costs.  Clients with very well managed freight costs have achieve freight savings opportunities of less than 6%.  Savings opportunities for these clients tend to be surgical, lane-level adjustments to only a few lanes.  The majority of our rate studies this year have found savings opportunities in excess of 10% which justified modal specific freight bids.

With that stated, I will also say the results of several bids conducted by ChemLogix in the latter portions of this summer have shown a transition in rates offered by carriers today.  Although significant savings were achieved through these bids, we saw either a slowdown in rate decreases or a stabilization of rates on similar lanes between bids. This trend, combined with other market indicators, such as, improving client load counts, increasing restrictions in getting carrier capacity in many markets, and hearing weekly that carrier business has started to boom over the over the last few months, all indicate conditions appear to be reversing themselves by summer’s end.

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War psp Femme Fatale divx ChemLogix still feels that current market conditions can and will permit great savings opportunities for those companies who take advantage of conditions now!  However, these conditions probably will not exist in three months.   We feel the market will begin to transition to higher rates at the end of the 4QTR09 as the national and world economies begin to recover.

If you think your company’s rates are high today then consider bidding your freight immediately.  If you are not sure how your freight rates fair against market conditions today, then have your rates benchmarked first and tie any bid activity to some savings trigger.  As a rule, ChemLogix feels savings opportunities of 5% or more should trigger a bid activity.  Companies with estimated savings of less than 5% should secure existing rates with existing core carriers for at least one year and go after identified savings opportunities using surgical, rate adjustments on a lane-by- lane basis only.  Few if any carriers will agree to more than a one-year rate contract today.

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