How to reduce freight costs
Freight costs can take up a significant portion of a shipper's budget, especially as market and supply chain conditions cause them to rise. But that doesn't mean there's nothing a shipper can do to reduce them. Quite the contrary, there are several steps a company can take as they figure how to reduce freight costs each year. Lately here, we've discussed budgeting for shipping costs, preparing a freight and logistics rfp, freight rates, and more specifically, spot rates vs. contract rates. Budgeting for these sometimes predictable and sometimes quite unpredictable expenses is a rich tapestry, but some simple tips can help shippers manage and reduce freight costs.
7 ways to reduce freight costs
1. Plan ahead
Plan ahead is a blanket term that touches a variety of ways to reduce freight costs. But blankets are a necessity (especially in the winter months here in Indianapolis) and so is planning ahead in freight and logistics. In this case, planning ahead means developing a comprehensive shipping strategy - forecasting shipping volume for the year, when that volume will be at its heaviest, when other shipping modes may work, allowing enough lead time for loads to avoid using expedited or air freight, and much more.
The comprehensive strategy - which is greatly assisted by a managed TMS platform - gives you visibility into all aspects of your freight and logistics operation to allow you to make the best decisions. The "when" piece is very important as well, as you can save considerably if you can avoid peak shipping times as much as possible - something certainly made easier with non-perishable goods. Anytime you can avoid being in a rush to ship is a good thing as well, both for your sanity and for your company's bottom line.
2. Consolidate shipments
Consolidating freight whenever possible can not only save money, but save time and improve transit performance as well. Freight consolidation occurs when a shipper consolidates LTL (less than truckload) shipments delivering to the same region on a single truckload or intermodal load. Even smaller scale loads can benefit, by combining parcels into an LTL shipment. And in the retail world, retail consolidation allows the combination of LTL shipments with other similarly located companies to go to large retail chains. You can find consolidation opportunities through TMS software or by working with a 3PL (third party logistics) provider.
3. Modal conversion
Modal conversion refers to switching a load from one form of transport to another, like truckload to intermodal or LTL to truckload. Moving from a more expensive to less expensive option whenever possible saves money. The least expensive to most expensive freight modes, as viewed by the cost per pound are:
4. Contract rates
Having contract rates for shipping in place not only provides more cost certainty, but also leads to cost savings. The reason, you can avoid playing the spot market and dealing with pricing volatility. As an added layer of protection, contract with multiple freight providers for your most important shipping lanes to avoid capacity issues.
5. Build relationships
Building relationships is good advice to live by in general, and it certainly applies to freight and logistics as well. If you've worked with a freight provider or two and have had positive results, look to build on that. Developing longer term partnerships - even beyond the length of any contract rate - can not only allow for potentially greater savings, but potentially greater efficiencies as well.
On your end as a shipper, be transparent and show your trust in these freight providers of choice to further develop the relationship. And while this doesn't mean you should skip the annual RFP process and only stick with these carriers, it does mean you shouldn't automatically jump ship to another provider simply because they come in with a slightly lower bid. It may not lead to the savings you think it will.
In this case, negotiate means negotiate every potential cost. As you prepare RFPs and move toward the contract stage, ensure you're negotiating rates with freight providers. But don't just negotiate, negotiate with data. Use market data and not your own prior rates, or you'll be going into negotiations with one hand tied behind your back.
Time your negotiations off-peak when possible as well, and you're likely to lock in better rates. Also, when working with LTL particularly, accessorial charges - for things like driver wait time, additional storage, and just about anything else unexpected - can be an unwelcome surprise. If you know certain accessorials are likely to occur for your shipments, pre-negotiate and save.
7. Outsource freight management
Using a 3PL can help shippers in a variety of ways - taking the logistics burden off internal staff, better connections, staying on top of technology, and more. But since we're talking costs here, outsourcing freight management can also save you money. How?
- Operational efficiency
- Cost of people
- Training of people
- Cost of technology
- Leveraging the buy of the carriers
- Utilizing transportation management software for optimization of rates, modal conversation and consolidation
While it didn't get its own line in our list, we've mentioned TMS a number of times. It can save a shipper money on its own and can also unlock additional savings when used to maximum effect - and a 3PL can help you do just that.
If you're looking for a 3PL that can do all of the above - and more - for your company, you've come to the right place. Reach out to us, and we'll get back to you to discuss how InTek can help you manage and reduce freight costs while optimizing service. Looking for more on freight costs, budgeting and more? Visit our Learning Center, or start with these articles:
- Freight Costs: An Insider’s Look on Freight Pricing Buyers Should Know
- How to Negotiate & Manage a Competitive Freight Rate RFP
- How-to Negotiate & Execute Best Freight Rates: Comprehensive Guide
- Best Freight, Logistics & Supply Chain Cost Savings Guide