Carrier costing models have evolved over the past couple of decades. Freight rates are based on the complete set of transportation-related processes at origin, in transit, and at destination, to serve each client. To effectively manage freight expenses, shippers must have a full understanding of all three elements.
Shippers with weak shipping order procedures and staging processes drive up the cost of freight transportation. Shipments that move at peak times, in congested areas, to remote areas, or on circuitous routes, drive up the cost of freight transportation. Consignees that disrupt or slow down the delivery process, that consistently extend a delivery beyond standard Hours of Service, that charge fines for late deliveries, have a significant negative impact on the financials of the shipper. What takes place during the pick-up and loading process is only part of the expense of moving freight in a cost-effective way. One of the biggest mistakes a shipper can make is to think that after they have selected high quality carriers, negotiated competitive freight rates, and trained their carriers on how to load their freight, their job is done. It isn’t.
The world of freight has changed. Hours of Service regulations coupled with the ELD implementation have increased the focus on driving and delivery windows. Strong economic conditions have created capacity shortages. Driver shortages have made capacity even tighter as carriers have had to park equipment across North America. Shippers and consignees with ineffective pick-up and delivery processes can increase the number of transit days beyond previous norms and raise costs. Shippers with chronically inefficient processes have been facing not only higher rates, but also a shortage of capacity. This can jeopardize customer retention, revenues and profits. What can shippers do to prevent this from happening?
Gain an Understanding of the Three Components of Freight Transportation for your Business
In most organizations, the sales team has responsibility for securing and retaining customers. But sales personnel are often not logistics professionals. They don’t have the expertise of their logistics and transportation colleagues. The first step in ensuring a fluid and reliable supply chain is to gain an understanding of all three components of transportation in serving your customers. (Note that for intermodal shipments, this could extend to five or six components with the addition of drayage moves). It is the responsibility of logistics managers to gain this understanding. You cannot manage something if you don’t have this knowledge, and if you don’t have the metrics to measure each component. Telephone calls will not do the trick. Site visits will be required to selected locations to gain the full perspective.
Engage your Carriers and Consignees
Equipped with this knowledge, a shipper can have a meaningful discussion on “pain points” associated with each component of their supply chain. This allows one to focus on what can be done to increase efficiencies and reduce costs. Can earlier or nighttime pickups be arranged? Would it make sense to have trailers dropped in the yard? Can pickup and delivery windows and appointment processes be improved?
Each area for improvement should be documented as a work plan with objectives, tasks, identification of persons responsible, metrics and timelines. Meetings should be scheduled to monitor progress. As one set of tasks is completed, the next set of tasks should be defined, and the process repeated.
Companies that take these steps can become “Shippers of Choice.” Carriers are seeking “carrier-friendly” shippers; shippers are seeking carrier partners.
Relationships with transport companies can be taken to a higher level through the creation of “core carrier” programs. For carriers that prove themselves to be trusted partners, enhance these relationships through information sharing and communication. Carriers like consistency in freight flows. For carriers that earn your trust and respect, help them by supplying them with consistent flows on certain lanes. Even if you bid your freight every few years, give your “partner” carriers the right of first refusal on their blocks of business.
Pay particular attention to drivers. There is an industry-wide shortage of qualified drivers in North America and this is likely to worsen over time. Keep drivers productive and satisfied. Provide driver amenities such as restrooms, break areas, and parking to make your locations more desirable. When a driver is on the clock, so is everyone in the supply chain. Ensuring drivers have a positive experience serving your company, and your consignees, should be a priority in every core carrier program.
Finally, look at the full range of capabilities before selecting carrier partners. Have they got enough equipment in their fleets to service your needs in off-peak and peak periods? Are they able to retain drivers? Do they have one or more warehouses to provide short term storage? Do they have a brokerage or logistics arm to handle additional volumes during peak periods? Do your due diligence with each core carrier to make sure they bring a range of assets and skills to enhance your business. Strong carrier and consignee partners can be a significant competitive advantage.
To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).