Transportation management is vital for manufacturers and distribution companies to control operational costs and improve profitability. In our overview of the 2013 State of Logistics report from Rosalyn Wilson and CSCMP, we noted that transportation costs dominate, representing 62.8% of total costs within the supply chain. Within that, 77.4% are trucking costs and 22.6% other modes and freight forwarders. That translates into trucking representing 48% of total logistics costs and other modes in total about 14%.
Transportation Management More Important than Ever With Increasing Capacity Crunch
As reported by freight transportation consultancy FTR Associates this week in their Trucking Conditions Index report, trucking market conditions may result in seasonal pricing power for carriers. With transportation costs, especially in trucking, representing a large part of expenditures within the supply chain, keen transportation management is vital to control costs. It is important now more than ever that executives at manufacturing and distribution companies, or any company who ships freight, either creates an efficient system in-house, or considers strongly to outsource logistics to a third party logistics company who will take the burden off having to keep up with industry trends which affect transportation costs via integrated freight management services and by offering a robust transportation management system to rate and quote shipments with multiple carriers, bringing the buying power back to a more balanced and lane-specific rate at time of shipment.
FTR said its reading for July, the most recent month for which data is available, was 8.41, representing a 30 percent gain over June. And it added that this increase reflects how going forward carriers may see rise in pricing this fall as capacity tightens with regulatory effects and decent freight demand. FTR also noted that it expects a modest peak in freight growth in the fall of 2013 before demand reverts to the slow growth trend experienced in 2012 and early 2013.
Jonathan Starks, FTR director of transportation analysis, said in a statement, “Unfortunately, freight demand has remained lackluster with very little movement up or down outside of normal seasonal activity. There is potential for a decent fall peak shipping season as the ISM manufacturing index is strong and inventories remain relatively lean, but the continued slog of the overall economy makes it unlikely that we get the significant push in consumer activity that is needed to really start moving the needle on capacity constraints and upward rate activity.”
The Benefits of Effective Transportation Management
When you employ an effective transportation management program either in house, or by employing a technology solution such as a TMS or if you turn to expertise by outsourcing logistics to a 3PL provider, you will realize the following benefits:
- Better freight rates with a focus on building collaborative relationships with multiple carriers, making sure to use a scorecard system along with a record of your history with the carrier so when it comes negotiation time you have more leverage to get the best rates based on your shipment history.
- Ability to analyze your freight activity through your TMS reports allowing you to optimize your future shipments based on the insights gleaned from this data. This includes analyzing whether or not the least cost carrier truly had the least cost over the life of the freight shipment. For example, the carrier may have the cheapest freight rate, but did they deliver your freight on time? Did they damage your freight often and thus drove up your costs? The more data you have the better prepared you are to truly choose the least cost carrier over the long-haul.
- Establish multiple types of shipment, such as pool point distribution, to create better routing strategies which further maximize carrier capacity thus driving down costs.
- Increase visibility for your entire organization into your transportation management program by staying strategic as opposed to in the tactics and weeds of process. By staying strategic you can better plan and optimize your transportation and freight department by having meaningful business meetings with department heads on how to better drive down costs.
- Decrease costly errors through process automation via the transportation management system. A TMS can easily integrate to your address book and ERP so your commodities and addresses are not input in error, which can drive up costs.
- Control inbound freight costs and better negotiate with suppliers and vendors. When you have a seamless inbound logistics program, you can have better relationships with your suppliers helping you to decrease future procurement costs.
By taking an integrated approach (Technology plus services/in-house system) to your transportation management, you’ll be able to lower costs;,streamline your processes, improve customer service, and develop methods to continuously improve your operations. With trucking making up a large part of your overall costs within the supply chain, due to ever increasing capacity, now is the time to think seriously about your transportation department and how you’re currently managing your freight.