On the Front
Author: Hank Newman
The recent load to truck ratio hit a two-year high indicating further that TL capacity is tightening up. As we've mentioned before, the DAT Solutions metric is a good indicator of the state of the market. If you explore the trendlines in more detail you can find certain markets that are tougher than others - like outbound Texas. http://www.dat.com/resources/trendlines/van/demand-and-capacity We are also noticing a very strong change in direction from the LTL carriers. You may recall in our last post we mentioned increases are being requested at higher %'s, which is a clear indication pricing power has shifted. In addition - they are getting far smarter in what they are handling and making it clear that there is certain freight they will not handle at a cheap price. I met with a large, national LTL carrier at their headquarters just last week. They told me they are handling around 50,000 shipments a day and are not looking to increase that number.
Reweighs, Classifications, Inspections - Why are they happening, why does it seem like it's escalating recently, and what can you do about them! LTL carrier inspections resulting in reweighing shipments, re-classifying shipments, and adding accessorial charges is now epidemic, but before we get into how to avoid them it's necessary to understand a little history and to have an appreciation for the carrier side of things. LTL carrier profitability has always been under serious pressure due to an abundance of capacity and competition in the marketplace. The recent recession crushed margins for these carriers, but the recovery wasn't as kind to them as other modes. Most are still scrambling for market share and find price increases difficult, but one thing the recession taught us all was to be lean and be smarter. Technology
MAP-21 - Shippers MUST check status of brokers and carriers! 38% of brokers are no longer legal to date! The Moving Ahead for Progress in the 21st Century legislation (MAP-21) contains provisions that have ramped up licensing requirements for brokers of freight. A broker can be any traditional broker who hires a motor carrier and acts as the intermediary for a shipper, but it also now includes carriers who sub-contract to others. Many carriers broker out freight and now they must have a broker's license including carrying the new $75,000 bond requirement. THIS IS VERY IMPORTANT! Shippers must know that any broker they use has the new bond or risk dealing with an entity not legally allowed to broker freight. The FMCSA site is the official site for
Managing freight costs is getting more difficult by the day. Everyone thinks managing freight costs are important, but they typically just see it as simply cutting carrier costs. There is so much more to it than that! Yes, there are shippers who are paying too much and in these cases rate cuts are possible, but the really powerful solutions involve looking at the entire process of freight management. Let's look upstream - who is managing the process and how? How does our packaging and palletizing of freight impact our rates and costs? What order quantities are most economical? How about the auditing and freight bill processing systems? What is our carrier strategy and lineup - is it cheap and poor service, expensive and top-quality, or is it the best combination of each dynamically selected for each shipment? Do we have a system to track
Why is it that freight management often escapes C-level attention? Isn't cost reduction and enhancing profitability a C-level responsibility? Step 4 - Distribution of the RFP We've learned the critical importance of understanding your data and your process and have also learned how to construct the components of an RFP that will yield strong results. Now let's put those components together. A good RFP for LTL carrier procurement should include: - A comprehensive bid narrative. Describe the scope of your operations, how orders are communicated, how freight payment will work, your specific locations, carrier performance expectations, and details of your freight characteristics (average shipment size, freight class breakdown, packaging types,
There is a new solution today - In-Sourced Freight Management - and it's what you need to know to regain control over logistics. It is a team approach, a partnership, a collaboration. It's based on transparency and direct control over the carrier relationship. It's no hidden broker or 3PL mark-ups. It creates maximum value for your company and it's available today with Recon! This series explains what you can do to reduce freight. It's a roadmap to how brokers and 3PLs find ways to lower rates before they mark them up to you. So far we've learned the importance of knowing your data (step 1) and knowing your process (step 2). Now that you have your baseline and know where you are today, it's time to move into step 3 which is the RFP (Request for Proposal) process.
The LTL carriers are driving rates up at an alarming rate lately. Think this doesn't apply to you since your 85% discount has remained the same over the years? Think again. The new tactics carriers are using to raise pricing have to do with all the extra charges beyond the discounted base rate. Over the past year or so, LTL carriers have become increasingly militant at implementing price increases that are very difficult to address and resolve. Here are some of the new ways that LTL carriers are raising your rates without having to actually put in a price increase: Inspections and Re-Weighs. Carriers now employ workers whose sole job is to weigh and measure everything in order to increase shipment revenue. They are even compensated for what they find.
Step 1 of How to Reduce Freight Costs discussed the importance of gathering data and developing a deep understanding in order to determine your baseline. Step 2 will emphasize the process side of the equation so you can put the two together to move on to step 3. Let's jump right into it. Step 2 - KNOW YOUR PROCESS Now that you know your data - the details of your freight spend, characteristics of your freight, carriers, fuel surcharges, key metrics and so on - you need to know exactly how you are managing the process today. Start with the life of a customer order AND a purchase order. It is very important to understand how both outbound and inbound orders are managed! Too often these freight processes are separated and to reduce costs you must
Who isn't seeking to reduce freight costs today? Shipping rates continue to rise and manufacturers continue to search for cost reduction solutions. LTL freight costs can be especially challenging due to all the variables involved. Outsourcing to a 3PL or broker is often a first move towards lowering transportation costs, but is it the best move? Sure, you can save, but are you getting the best possible value and does it fit your organization? 3PL and broker margins average 20% - more for smaller shippers. Is this a good deal? Maybe, but if your annual freight spend is around $100,000 or more there just might be a better way. 3PLs and brokers often act as an intermediary blocking complete control over your carriers and rates. Perhaps they can lower your costs and create efficiency, but what are they making? Without complete