5 Ways to Teach You How to Reduce Freight Costs
As a business executive of a manufacturing, distribution, or any company who ships freight, you are often wondering ways on how to reduce freight costs. As your CFO or accounting department may tell you, and your business experience, when it comes to freight costs, it’s not only the hard cost of shipping the freight, or the freight rate, but it’s the whole picture you must take a look at. Meaning, what are both the hard AND soft cost savings that you can realize when you are better armed with the following top 6 of 11 considerations when processing freight shipments.
1. Not all discounts are the same; Lower Base Rate vs. Carrier Discounts
When processing a freight shipment, the first thing most look at when processing a freight shipment is the quote or freight rate given by a carrier as the first step in how to reduce freight costs. All carrier discounts do not have the same value. For example, a base rate for Carrier A could be as much as seven percent higher than for Carrier B. Depending on your shipping patterns, a 45-percent discount from the carrier with the lower base rate can be more beneficial than a 50-percent discount from the other carrier. Remember to always dig below the numbers.
Some of the most common unforeseen and “add on fees” caught in freight auditing, both manual and automatic through freight technology, after a freight shipment is made are from not understanding, and not applying accessorials. The more you know about how to identify when they may occur and the more you know about your own shipping activity and lanes, the easier it is to mitigate and eliminate these costs adding up in the holy grail of how to reduce freight costs. Some common accessorials are:
- Residential adjustments
- Weight Adjustments
- and Additional handling accessorials.
The more you know about the possibility of accessorials, the better you can budget your total freight costs. By performing thorough analyses of your company’s shipping history and characteristics internally or with the assistance of a qualified third party, it is possible to see that your accessorials are discounted or waived entirely.
3. Fuel Surcharges
Carriers have different and vastly varying fuel surcharges. With some simple math by using your freight data, level the playing field by proposing a single fuel surcharge that you develop to create an apples-to-apples comparison of these charges. By doing so, you eliminate one variable you have to analyze when comparing carrier costs and seeking how to reduce freight costs.
4. Mode and Route Optimization
One of the easiest ways to realize both soft and hard costs savings as it relates to your freight expenditures is knowing the right mode and route to ship your freight. Often, if you can optimize and break out a truckload to LTL or to drop-ship, you can maximize savings by decreasing your overall risk, but also making your freight more attractive to LTL carriers who may give you a better rate as they are looking to maximize profits and capacity themselves. Conversely, if you have specialized or unique freight that ways below a TL freight shipment, but has say many pallets, a volume or spot quote may be the way to go. The point is to not take the shipment at face value, but to think long term and what will save you the most money over the long haul.
5. Address Book and Data Entry
How much money do you think you lose by simple data entry or using the wrong address when requesing a freight quote or rate? Common errors are big problem areas when seeking how to reduce freight costs. Probably more than you think. Furthermore, how many man hours are wasted having to fix those errors on the back end? One of the easiest ways to tackle complete freight cost waste is to use freight technology which can integrate with your ERP or contact management system to essentially eliminate the need for manual data entry.
6. Proper Classification
Each year the National Motor Freight Classification guide re-classifies freight in various ways. Do you keep up with all of it? Most likely not, and who really has time for that? Well, it may behoove you to implore your Logistics Director or the person who process your freight shipments to stay up to speed on the freight you specifically ship. We are not asking you to be the expert in all classes, but the more you know the more you can save. We often hear from our customers, “No one has ever asked us what class we should ship, we usually just pick 70 so we are close.” That is like leaving pennies on the table, and over time, pennies add up. Conduct an historical freight invoice analysis and see how much money you would have saved if all freight shipments were classed correctly. We bet you’d be surprised.
Managing your freight costs are more than just the rate you see in front of you. As a person running a business, don’t let your freight be your focus, let your core competencies be your focus so you can grow your business, and thus…..ship more freight! Look out for 5 more
What are your top tips on reducing freight costs which impact your business and bottom line? Let us know in the comments below!