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As the long, slow recovery from the Great Recession continues, shippers and carriers have become used to modest economic growth. Demand for freight services has been steady but not robust. The muted demand for freight services has not put undo pressure on truck capacity; rate increases have been limited in recent years. This may be about to change.

Regulations have placed constraints on the management of trucking companies, particularly full load carriers. The Hours of Service regulations coupled with the ELD (electronic logging device) mandate are placing limits on the number of hours that a driver can legally operate a truck. These directives limit truck capacity. The difficulties in finding quality drivers and the high turnover ratio among current drivers provides additional challenges for many truck fleets. To address the potential erosion in capacity, truckers are applying a variety of technologies.

Good quality transportation management systems are allowing truckers to better manage their routes and balance their lanes. Dimensional scanners are helping LTL carriers manage the space available on their trailers by matching freight rates to cube utilization. ELD technology provides carriers with information on how long their drivers and equipment are held up at customers’ facilities. The net result of all this is that small parcel, LTL and truckload carriers can be much more accurate in tailoring their freight rates to the “carrier friendliness” of their clients.

How can shippers become more "carrier friendly”?  Here are a few items to consider.

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Much of the work we do at Dan Goodwill & Associates starts with a phone call or e-mail from a President, CFO or Vice President of Logistics or Transportation. One of the first questions that we are asked is can your firm help us reduce our freight costs.

The answer is usually yes. Unfortunately, we are not able to wave a magic wand. Effective freight cost management comes from taking some concrete steps. Here they are.

Centralized Command and Control

Many of our clients have grown through acquisition and/or organically. They have manufacturing and distribution facilities in multiple locations. These sites are often managed individually by local logistics managers who each use a set of preferred carriers. By not consolidating shipments, by moving LTL freight daily and by using a variety of carriers, they sub-optimize on freight cost management.

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A little over a year ago, I wrote a blog entitled “How do you know when it is time to conduct a freight bid?” (http://www.dantranscon.com/index.php/blog/entry/how-do-you-know-when-it-is-time-to-conduct-a-freight-bid ). In that blog, I outlined a set of general conditions that shippers can use as a guide to reach this decision point. Half way through the first quarter of 2017, I find myself thinking about this issue again. Here’s why.

The stock markets in North America are hitting record levels on an almost daily basis. Usually this is a sign of good economic times ahead. The US Consumer Confidence Index in December of 113.7, reached its highest level since 2001, a sure sign that people are ready to open their wallets and buy things. The National Purchasing Manager’s Index increased to 54.7% in December 2016, an increase of 150 basis points over the previous month and the 91st consecutive month for growth in the overall US economy.

The Shippers Conditions Index for October 2016 increased to a neutral reading of 0.4. FTR, an American transportation consulting service, expects that shippers will see a couple more months of neutral market conditions before they may be impacted in the latter half of 2017. The impact would in part be due to potential capacity issues stemming from the Electronic Logging Device (ELD) implementation scheduled for the end of 2017.

ACT Research’s For-Hire Trucking Index sees freight rising faster than capacity, increasing the gap to levels not observed since 2014. January freight volumes for TransCore’s Link Logistics continue an upward trend after a surge in freight volume in December 2016. Although the record for highest load volumes for January was set in 2014, last month’s load volumes are the second highest recorded for the month of January, and compared to last year load volumes have leaped 43% year-over-year.

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The subject of online freight bids and internet freight auctions came up a few times at the Surface Transportation Summit that took place in Toronto on October 13. The carriers that raised this topic spoke of the high volume and poor quality of bids that have been hitting the transportation industry this year. One carrier was so fed up with the internet auctions in which they were participating that they made a decision to opt out of them.

It is clear that where there is a market opportunity, there are a multitude of companies that are seeking to meet the needs of unsuspecting shippers. It was apparent from the carrier comments that there are a number of unqualified or underqualified, unprofessional providers, some with very limited expertise, who are providing an unsatisfactory service to their customers and a disservice to the industry. These are some of the issues that were brought to light.

There are bids on the market where the carrier is being asked to quote on 6000 lanes of traffic, a massive undertaking. In one case, the carrier was provided with shipment data that stated that there are 1600 truckloads of freight that move on a particular lane each year. The carrier that is the incumbent, looked at their data and noticed that they move only 160 LTL shipments on the particular lane each year.

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Some large LTL carriers have announced rates increases this fall. Old Dominion, XPO Logistics, YRC Freight and UPS Freight have all declared 4.9 percent GRI rate increases on non-contract LTL freight that took effect in September. In survey after survey, shippers have claimed that cross reductions are their number one priority. How can these two conflicting strategies be resolved?

It is important for LTL shippers to realize that LTL carriers are serious about making these increases stick. Despite somewhat muted demand for LTL service, carriers are making a determined effort to secure these increases.

One of the major reasons for the focus and discipline is balanced capacity. Most of the large LTL carriers shrank their networks considerably in the aftermath of the 2008-09 recession. As a result, there’s not a lot, if any, excess LTL capacity. Yield management is the priority this year. With limited capacity, there is little value in triggering a price war. A race to the bottom does little to help carriers raise their margins. LTL carriers are looking at their margins per lane and per account and taking action on contracted and non-contracted freight to improve yields. What can shippers do to mitigate these GRI increases?

For companies that have significant volumes of freight, they can put their business out for bid, leverage their volumes and sign multi-year contracts with minimal rate increases in subsequent years. There are a number of Best Practices that can be employed to make your freight bid a productive process (http://www.dantranscon.com/index.php/blog/entry/freight-bid-tip-1-obtain-buy-in-and-participation-from-the-operating-divisions ). For shippers that routinely do this on an annual or bi-annual basis, there are other avenues to pursue.

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The first blog in this series looked at the money saving opportunities for organizations that take control of Inbound Transportation. This blog will outline a series of steps that need to be taken to make this happen.

A Commitment to Act

In the last blog, it was highlighted that some vendors place a mark-up on their outbound freight costs (viz. your company’s inbound freight expenses) and pass it on to their customers. It is important for every company that receives inbound freight to understand the following.

A trucking company adds a mark-up to their costs in order to come up with their freight rates. A freight broker and/or logistics service provider will take the carrier’s rate and add another mark-up. In other words, by the time you receive shipments from your vendors, they may have from two to four mark-ups added to the basic cost.

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b2ap3_thumbnail_dreamstime_xl_9421932.jpgManaging Inbound Freight is often overlooked or not optimally managed as an opportunity for cost savings in many companies. This is a conclusion we have come to after working with a range of companies and industries over the past 13 years. When we are invited to meet with a manufacturer or distributor of freight, the priority is usually finding cost savings on outbound freight, not inbound freight. This seems to be the result of several factors.

First, many companies are not able to determine how much they are paying for inbound freight. Freight costs are often embedded in the “landed cost” of the products; the actual freight cost component is not identified. Many companies have poor visibility into their inbound freight activity.

Second, some companies don’t care about their inbound freight costs. They take the landed cost of their inbound shipments and add a markup. They are satisfied with this approach.

Third, some companies are concerned about upsetting their vendors by asking them what they pay for freight. These companies may be very dependent on certain vendors for specific products and have a perception that by engaging in a dialogue on freight costs, an area that the vendor has historically managed on their own, this may encourage the vendor to give priority to other customers. In some situations there is the perception that because the vendor is a large company, they are able to negotiate better rates than the manufacturer receiving the goods.

Fourth, companies often have a Transportation or Logistics Manager who is responsible for outbound freight; inbound freight is managed, unmanaged or mismanaged separately by the purchasing/procurement department. Shippers who take charge of Inbound Freight Transportation can achieve savings in a number of areas.

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b2ap3_thumbnail_Sample-Routing-GuideV1_20160429-193844_1.jpgMany shippers don’t achieve the cost savings they expect from their freight bid exercises. This can happen despite the time, energy and costs that go into these projects. Based on our work with shippers over the past twelve years, these are the main reasons why this happens.

A Failure to Provide Full Disclosure of Requirements and Expectations

As a prelude to the execution of a freight bid, shippers are required to gather and document the scope of their freight transportation requirements. For carriers to bid properly on a shipper’s freight, this goes well beyond volumes, lanes and transit times. Carriers need to understand everything about the pick-up, linehaul and delivery operations. Unfortunately, this does not always happen. The omission of certain requirements can lead to erroneous carrier selections and turmoil after the bid has been completed and the freight has been awarded. Here is one example.

Some shippers require early morning (i.e. 7:30 AM) deliveries. Not all LTL carriers are able to supply this service in all locations on a consistent basis. If carriers are not informed of this requirement in the RFP and then expected to meet this requirement in certain locations after the bid has been awarded, this can lead to service failures and pressure to bring back the incumbent (s).

A Failure to Gain Buy-In and Support from all Divisions and Sister Companies

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A couple of weeks ago, I wrote a blog about the new pricing processes that LTL (and small parcel) carriers are employing to improve the profitability of their operations. I noted that freight carriers are emulating some of the activities that have been undertaken by the airlines such as dynamic pricing (i.e. adjusting rates based on time of day and day of the week) to increase yields on their freight activities.

Similar to the airlines, in recent years, LTL carriers have become more focused and aggressive in seeking payment for additional services (that have distinctive cost elements) that have been offered at no charge or at less than full cost recovery in the past. Many carriers have been focusing on inefficient shipper practices or administratively costly tasks that drive up their costs. They have been turning to their customers to compensate them.

In this blog, I will provide a set of questions that shippers should ask themselves and their customers to understand the current shipping processes that are precipitating accessorial charges and the costs that are being incurred. In the next blog, I will provide some general practices that shippers can employ to mitigate these costs.

Why do Accessorial Charges Exist?

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Recent stock market and currency value declines in China and Canada point to a challenging year ahead for the economies of these two countries and many others around the world. While the United States has remained fairly stable amidst current world turmoil, its high valued currency may slow exports to its key trading partners. If business levels deteriorate this year, this will place added pressure on shippers who are trying to manage their freight costs? Is this a year to conduct a freight bid?

Certainly faltering economic conditions typically encourage manufacturers and distributors to conduct RFPs to keep freight costs as low as possible. Beyond the general state of the economy, there are a usually a range of conditions that set the stage for a successful freight bid. Here a few to consider.

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In my last blog, I outlined a set of tips to help carriers achieve greater success with Freight Bids. Here are a few more.

Put your best foot forward early in the process

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Freight Bids or Freight RFPs have been around for over two decades. Every year we hear comments about their imminent demise. Unfortunately for many motor carriers, this is wishful thinking. While these exercises are often detested by freight companies, they are popular with shippers across North America. Why? When well done, they provide the shipper with better service providers at a lower cost.

One of the popular themes at many freight conferences is the talk of shipper-carrier partnerships and collaboration. I have heard this theme for a decade. If only shippers would sit down with their carriers, they could pull costs out of their operations and become more efficient.

While this is possible and even probable, the problem with this scenario is that the shipper is left wondering if carrier B could pull even more costs out of the operation than carrier A. This explains why so many shippers have contracted their freight to logistics service providers. They are not convinced that if they forgo the RFP in favor of collaboration, they will derive the maximum benefit. Thus the popularity of freight bids.

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b2ap3_thumbnail_dreamstime_l_20588089.jpgIn the last blog, I highlighted some of the opportunities that shippers miss out on to save money on freight when they don’t manage their freight spend data effectively. What steps can a shipper take to correct this situation? Here is a partial list.

• Utilize a Transportation Management (TMS) System. TMS systems have changed significantly over the past ten years. Shippers can now buy or lease a TMS system at a reasonable rate. For companies that don’t wish to make this investment, they can reap many of the benefits without making a capital investment by working with a logistics service provider that has a leading edge system.

• Make sure the company’s or LSP’s TMS system is capturing the key data elements on a daily basis that are needed to monitor freight expenditures. This includes complete and accurate commodity descriptions, actual weights and billed weights, capturing the various cost elements of their shipments individually such as the freight rate, fuel surcharge, currency exchange, accessorial charges, carrier name, origin and destination cities, state/province and postal codes/zip codes, ship date and arrival date.

• Sort the data in the following ways to help identify opportunities for improvement:

             By carrier – to reduce the company’s dependency and vulnerability in case of a strike or business failure and to leverage shipping volumes

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A company’s freight costs often represents between two and ten percent of total revenues. For many companies in the manufacturing, distribution and retail sectors, their freight spend has a direct impact on their bottom lines. Nine years ago I wrote a blog with the title above. In that blog, I identified one of the consistent problems we encounter in working with shippers on a day to day basis, namely a lack of complete and accurate information on their freight transportation activities.

Nine years later, this problem persists and it is not limited to just small companies. In fact, many companies with freight expenditures of five to fifty million dollars or more face the same problem.

The challenge now is that freight companies have figured out that if they use their scales and dimensioning devices, they can weigh and measure the freight they move more accurately. If shippers have poor practices that hinder the flow of their assets, they can calculate the cost of these deficiencies. They are now charging more aggressively for these additional costs and for the precise cubic space occupied by the freight. As a result, carriers can and are securing revenue that they may have missed in the past.

What is interesting is that some of these shippers have high quality ERP and accounting systems. However, when you try to extract a year’s worth of freight transportation data, you receive a file that is riddled with errors and omissions.

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As we all know, freight capacity throughout North America is tightening. A shortage of drivers, new government regulations and rising fleet costs are making it increasingly challenging for trucking companies to operate their fleets. As a result, carriers are being selective in terms of the shippers for whom they will offer their fleet capacity.

Smart carriers are ranking their customers on the basis of profitability and ease of serving. Shippers must now make their companies and their freight attractive to their carriers to secure the capacity they need. These are some things they can do.

Run a Clean Operation

Simply put, shippers need to be organized. As carriers enter their customers’ yards, they want to find an available dock door and they want the freight and paperwork to be ready for pick-up. They don’t want to have to wait as other carriers to block their way. They also don’t want their customers to call them back 30 minutes after they left the yard to pick up an extra skid or two. In other words, trucking companies want consistency, reliability and predictability. They want to work with shippers that are efficient and keep their costs down.

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The previous blog focused on some of the core freight management processes that are part of a company’s supply chain. For many years, prior to the age of computers and tablets, these processes were performed with manual procedures, calculators and spreadsheets. Some companies still use spreadsheets to manage a few or all of these processes. The good news is that there are some excellent technology-based tools that shippers can acquire or outsource to manage freight transportation. They include:

Transportation Management Systems (TMS)

A good TMS system can perform many of the activities outlined in the previous blog (http://www.dantranscon.com/index.php/blog?view=entry&id=202). These include shipment planning, shipment consolidations, mode and carrier selection, carrier performance management, exception reporting and a host of other functions. When linked with a strong Warehouse Management System (WMS), they provide a powerful integrated system to perform “end to end” supply chain management.

Shipment Loading

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In many firms, freight costs can be in the millions or tens of millions of dollars. This large expense can represent a significant percent of a company’s revenue. As a large expense item, it needs to be managed very skillfully.

The first blog in this series (http://www.dantranscon.com/index.php/blog/entry/becoming-a-best-in-class-shipper-1-freight-data-management) looked at the need for detailed, accurate, freight spend data. One of the benefits of having this type of quality data is that it allows the transportation leaders of an organization to create a quality freight budget. The budget should be tied directly to the company’s business plan and supply chain strategy. Every manufacturer or distributor must make certain assumptions about how it plans to transport its inbound raw materials and deliver its finished goods. These assumptions outline the modes and expected costs.

The budget should detail on at least a monthly basis, the projected revenues and freight costs. Since many companies utilize multiple modes (e.g. small parcel, LTL , intermodal, etc.) and multiple service options (e.g. next day by 9:00 AM, regular ground, air freight etc.), it is important to capture this type of granular data since the costs will vary based on the mode and service chosen. Similarly, projections should be made concerning fuel surcharges and any other extra cost that can be a significant component of the freight budget.

The company should also produce a monthly transportation expense variance report. The report should be granular and provide variances on expenses by mode and cost item. It should highlight percentage changes in modal utilization and carrier collaboration.

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Best in Class shippers have high quality, granular, historical freight data. They capture clean, accurate, complete data on all of their inbound, outbound and inter-branch transfers, across all modes. The most fundamental building blocks are the individual boxes, parcels, envelopes, cartons, drums or pallets.

Capturing this data correctly and completely allows a shipper to address such fundamental issues as the type of container to be used, space occupied, loading plan etc. This data is also critical when conducting an RFP as a means of selecting the appropriate modes and carriers. The data that each shipper maintains must contain certain data elements in order to be useful for analysis and planning purposes. The following data fields are essential.

 Shipment number

 Pick up date

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Some shippers operate under the misconception that once the bid awards have been made, the RFP process has been completed. This is not the case. There is another critical step that can “make or break” the bid process. It is absolutely essential, particularly in multi-plant companies, to have a process in place, immediately upon implementation, to monitor routing guide compliance.

There is an old adage in business that you cannot manage what you cannot measure. This fully applies to the implementation of freight bids.

Never underestimate the power of human relationships. Tickets to sporting events, golf outings, annual fishing trips or vacations at a carrier’s summer or winter residence can do wonders to dismantle the work of a freight bid. In our work we have seen companies use low ranked carriers, or even carriers not listed in the routing guide, to move their freight. To maintain certain long standing carrier relationships, some shippers can and will find reasons to make a switch back to the incumbents.

We would recommend that you not conduct a freight bid until your company is able to put in place some form of reliable compliance tracking. Even a weekly spreadsheet that displays by lane, the carriers moving the freight that week and the reasons for replacing a carrier in the routing guide, would be a helpful tool.

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We live in an era of impersonal communication. E mails, text messages, tweets and GoToMeetings have replaced face to face communication in many instances.

The decision to award millions or tens of millions of dollars in freight transportation to a set of carriers is a very important one. You don’t want to entrust your company’s business and reputation to poor service providers that say they will meet your needs and don’t deliver. You don’t want to commit your business to carriers that offer low pricing to secure the contract and then come back a few weeks later with a rate increase, claiming they misunderstood the bid. These situations happen all too often and they can be very disruptive and financially punitive to shippers.

It is our view that the bid evaluation and award process cannot be done effectively through automated computer programs. There is a requirement to meet “eyeball to eyeball” with companies that may be your future business partners. These meetings should have a formal agenda. In addition to pricing issues, there is value in reviewing the carriers’ operations in detail. This includes:

a) fleet size and age

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