Is the economy driving you to revisit your transportation strategy?
How to keep products moving and control costs
In this post, we explore:
How the post-recession economy has shifted the logistics landscape, and what it means for companies impacted by the shipping industry
Two key components logistics managers must address to substantially cut transportation costs
Commonly overlooked process improvements – what companies know but aren’t doing
How to quickly implement improvements to maximize savings and increase return on investment
There’s no doubt about it: When it comes to transportation, economic fluctuations have made a huge impact. Within a decade, the logistics industry has done a 180 – from an overabundance of trucks and drivers vying for companies’ precious cargo by offering competitive pricing, to a smaller number of transportation companies hard pressed to meet their commitments despite considerable rate increases.
It’s a simple matter of supply and demand. The recession took its toll on the logistics industry, driving thousands of trucking companies out of business. Now that the economy is on the rebound, the gap left by these extinct carriers is tangible. With a significant shortage of both trucks and drivers, the market naturally answers to the highest bidder. How can you keep your products moving and still control your costs in this challenging scenario?
Rates alone won’t cut it
With regards to transportation, substantial cost reduction incorporates two key components – Rate Reduction and Process Improvements. For many companies, emphasis has been placed primarily on rate reduction, which remains a key component. However, having the right logistics framework in place is just as, if not more effective in managing transportation costs.
Even skilled rate negotiators who, in years past, expertly bargained for the best deals, aren’t able to produce the same results in the current environment. Today’s marketplace is conspiring against them, and carriers now undoubtedly have the upper hand. According to Forbes, private US trucking companies posted their fourth year of higher sales in 2013 with net margins averaging 6 percent, compared to 3 and 4 percent in recent years. In fact, the trucking industry’s outlook is so peachy and the driver shortage so severe, that drivers are being snatched from school before getting their certification, while trucking companies are resorting to incentives in order to lure enough drivers to keep their fleets on the road. So unless an organization is planning to launch their own trucking division, it might be time to start considering other viable ways to improve their shipping process besides just benchmarking freight rates.
Process Improvements – Knowing vs. Doing
It’s common knowledge that shipping next-day air is significantly more expensive than shipping ground, or even two-day air. But is there a system in place that controls which shipments are authorized for next-day versus ground? If unable to avoid high-cost shipments, are these costs being recovered from suppliers or customers where possible?
Or consider the frequently overlooked mode shift. Could the use of alternate transportation modes produce significant savings? Rosalyn Wilson, the author of The Annual State of Logistics Report, has indicated that a trucking capacity crunch is taking place in the U.S, driving shippers to find other options, especially intermodal service, to move their freight. For a company importing product from say, China, the mode shift opportunity may be from air to ocean since international airfreight will cost a company ten times more per pound than a full container load ocean shipment. While it’s commonly recognized that air freight is more expensive than ocean freight, whether a company has the forecasting ability to capitalize on these savings is a different story. If not, this may signal a lack of agility within the company’s Sales & Operations Planning(S&OP) process. When there’s potential to save 90% in shipping costs, it’s likely well worth the investment to pursue improvements further.
Other areas commonly overlooked:
- Consolidating freight, using multi-stop truckloads (inbound or outbound), or outbound pool distribution
- Product diversification within a container to maximize cube utilization (shipping small heavy product with large lightweight product)
- Incorrectly applied customer discounts (ex: customer did not meet the minimum order requirement but still given discount)
- Network optimization (location of manufacturing facilities in relation to supply base or customer base)
These types of missed opportunities are fairly prevalent due to a myriad of reasons… To read the complete article, please download the file by clicking the link in the right column.
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