3 Reasons Your Freight and Small Parcel Spend Is Higher Than It Should Be
It can be hard to finish your negotiations for freight or small parcel rates and not feel like you have left some money on the table. Carriers do their best to keep shippers off balance with details and extra things that make it almost impossible to know if you are ever really able to get the best possible rates from them.
However, this is not an excuse for you not to try. Your confusion isn’t the carrier’s fault, and they are not in the business of giving away their best rates without some resistance. Like any successful company (yours included), they live and die by their margins. Here are 3 reasons you could be spending more than you should be on freight and what to do about it.
1 – You don’t understand your own business well enough
Carriers cannot provide the best price if you can’t clearly articulate your needs. If you are not tracking and measuring shipment volumes by lane it’s impossible to paint a clear picture of your business for carriers. Details like your specific product types and handling requirements go into pricing as well. It’s these details that shape the pricing that carriers will offer you, and the more specific the better.
It’s also important to communicate how your business may be changing in the future. Shipping patterns and locations change pricing — sometimes for the better, and sometimes for the worse. Again, what matters is that it starts with a clear understanding of your own business.
2 – You didn’t properly prepare for contract negotiations
Leading into a contract negotiation requires a lot of planning. Not being organized with your data makes it impossible for you to do a true apples-to-apples comparison between different rate proposals. This is very important for you to control, because it’s a common tactic for carriers to make comparing their rates with those of their competitors difficult. They do this by providing different rate matrices and accessorial/surcharge tables.
Navigating through this can be messy. It’s a mistake to not have a partner.
3 – You are not optimizing your routing
Higher costs don’t just happen because of bad rate negotiation, they are also the result of poor choices. When mode and carrier choices are made based on bad assumptions, costs go up.
For example, there can be a fine line between what’s the better choice for many shipments when choosing between shipping something small parcel vs. LTL. Many times this decision is made on general assumptions like “all shipments over 200 lbs. go LTL.” The structure of pricing carriers and your own contracts may change the math behind this type of decision with each new contract you sign.
Similarly, many shippers are paying for service levels they do not need, like 2-Day Express when Ground will get it there just as soon.
As a logistics professional, optimizing your company’s shipping spend is a big part of what you do. And, it’s probably something you take a lot of pride in. Focusing on these 3 areas is a fast way to take control of your contract rate negotiations with your carriers and optimize your logistics spend.