Your Freight Rates Are too High: Here’s why
Logistics managers need to be wary of becoming complacent about their freight rates. With so much to deal with every day, it’s tempting to assume that your rates are “good enough” or “roughly in line with the market” — but it’s likely that this is not, in fact, the case, and your costs are higher than they need to be.
Shippers who dig deeper are likely to find that their rates are not competitive and their overall logistics costs are too high.
However, we have good news: It’s easy to discover the causes — and they’re both fixable and preventable.
To give you a start on improving your freight agreements and bringing your costs down, here are three reasons your logistics costs are higher than they should be, and what to do about it.
A variable market
The freight rate market is never static — rates are always changing due to the influence of numerous factors. A couple of major factors pushing rates higher the last few years have been the driver shortage and related capacity crunch. As with all cycles of supply and demand, when the market leaders (i.e., the large carriers) start upping their rates, other carriers usually follow suit.
Right now, as we enter peak shipping season, capacity is extra tight and getting tighter. But come January, it will be a buyer’s market. There are also signs the driver shortage is easing, or even overstated. Early in 2020 will be an excellent time to revisit your carrier agreements and see if there’s an opportunity to obtain more favorable rates and terms.
Manual processes and murky data
If you don’t have a holistic view of what’s going on in your logistics operation, it’s impossible to know where improvements can be made. Most shippers that lack this type of visibility due to inadequate logistics technology and processes have no knowledge of their current costs or the ability to effectively “go to market” in the hopes of lowering rates. You can’t manage what you don’t measure, as the saying goes.
Worse yet, the day-to-day of shipping is probably still very manual for these companies, so decision-making around routing, carrier selection, and costs is not informed by real data. Shippers operating this way have no baseline of what their rates currently are, much less what they could be. Putting processes in place to gather and measure data is the first step towards an optimized logistics operation.
When a company’s logistics capabilities and planning are not equal to its mission and where it wants to go, costs won’t just be too high, but growth will also be hampered. Your company’s logistics partners, such as carriers and warehouses, need to have capabilities that align with what your company is looking to achieve.
A great example of this in practice is Amazon’s ability to provide one- or two-day delivery. This ability is the result of a deliberate plan to create the necessary logistics infrastructure to provide this level of service. As small companies grow, it’s natural for there to be misalignment between logistics and the company’s goals, but for exactly this reason, the logistics operation needs to be periodically reviewed (just like carrier rates).
To know if your company’s freight rates are competitive, you need to have a detailed picture of your costs today and the capabilities the company will need in the future. Not only is the market constantly changing and evolving, but so is the company itself. For this reason, complacency is a road to higher costs and slower growth. The timing is always right to evaluate your freight agreements to make sure you are getting the best rates possible.
Bonus report: Click here to download our special report “3 Reasons Your Freight & Small Parcel Spend Is Higher than It Should Be.”