Gaining Efficiencies Through LTL Outsourcing

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1 Collaborative Outsourcing Gaining Efficiencies Through LTL Outsourcing White Paper Powerful New Ideas for Freight Management

2 In brief Outsourcing LTL (less than truckload) offers rich opportunities for companies to improve efficiency and lower costs. Companies that outsource a freight service like LTL can add strong technology, management of multiple providers, expertise, and improved service levels into the organization. This white paper looks at the challenges that are leading many companies to outsource LTL. Contents Why outsource LTL? 3 A closer look at LTL pricing and discounts 5 Advantages of collaborative LTL outsourcing 6 5 criteria for selecting an LTL outsource provider 8

3 Any company can ship LTL freight. But not many companies have the in-house staff with LTL expertise to achieve the highest levels of supply chain efficiency. To take advantage of potential opportunities, some organizations outsource LTL shipping to a skilled logistics provider that has a specialized knowledge of LTL practices. While the company refocuses its own staff on core functions, the provider oversees LTL shipments, capitalizes on market dynamics wherever possible, improves customer service, and offers additional savings and value. Why outsource LTL? Without deep-rooted expertise, it is difficult to understand the intricacies of LTL shipping and how they affect the cost of transportation. A shipper may consider outsourcing for these reasons: 1. Lack of expertise in the complexities of LTL shipping. The LTL industry operates under a complicated system of tariffs, discounts, classifications, weights, accessorials, and fuel surcharges. Shippers who fail to take all of these variables into account can quickly find themselves facing unanticipated charges. For example, a company may incorrectly classify a product being shipped. This is a problem because each product class has its own criteria for packaging and its own rates, based on the weight and space the product takes in the truck. The shipper may not realize there have been extra charges for the freight until they receive the final invoice, and by then, it s too late to make adjustments to the paperwork or bill of lading. In addition, they may be charged for accessorials (charges beyond normal pickup, transport, and delivery) like lift gate equipped trucks or other items that were required for the pickup or delivery. Outsourcing can circumvent such issues, providing a proactive versus reactive approach to LTL shipping. C.H. Robinson Gaining Efficiencies Through LTL Outsourcing 3

4 The actual process of finding a[n outsource] provider and performing a baseline analysis will cause a company to look internally to improve processes. This often breathes new life into functions such as customer service, purchasing, and procurement Desire for more rigor and process around carrier selection and information management. In the truckload market, there are thousands of carriers for hire, so shippers have a highly competitive environment in which to leverage their volumes to their best advantage. With only about 100 LTL carriers in the marketplace and the top 50 making up 90% of market share by revenue 1 there are very few carriers to choose from. Only a handful operate on a national scale; the rest serve a given region or local geography. Shippers can expect to do more research to identify the LTL carriers that are best suited for their needs. Additionally, each LTL carrier brings its own pricing structure and set of practices to the table. Each has its own tracking and tracing methodology, and it becomes challenging to work with multiple carriers, all operating and reporting through different systems. Some shippers turn to LTL outsourcing to gain a single point of contact and a single platform that aggregates data and information for better supply chain visibility. 3. More flexibility to meet customer demands. Shippers customers may demand more just in time shipping so they can reduce inventory and associated carrying costs. For the shipper, smaller, more frequent shipments can place more strain on their supply chain. What s more, moving freight through LTL carriers huband-spoke networks can mean longer transit times and an increase in the potential for damage (see Example 1). When shippers are challenged to meet growing customer demands and need flexible options, they may turn to LTL outsourcing. 4. Lost opportunities to optimize freight and reduce costs. LTL is a more expensive shipping method than full truckload, so cost savings opportunities may exist by combining LTL loads to form a full truckload. Or, freight that is shipped via LTL might be more economically transported by sending the freight by small parcel service. Evaluating the best shipping options every time and minimizing transportation costs requires accurate data and an optimization system. Many shippers choose to achieve that goal by outsourcing LTL, rather than buying and maintaining their own system or dedicating resources for freight optimization. Providers can analyze LTL shipments for the most cost effective means of transportation and monitor all shipments. They offer consolidated reporting through a robust technology platform and analyze shipping patterns and costs to identify more opportunities for cost savings. It takes constant monitoring and analysis to identify every opportunity for efficiency. Companies that outsource LTL obtain this expertise, along with flexibility, processes, visibility, and optimization. That level of specialization helps achieve a model LTL supply chain, and can produce cost savings, as well. 1 SJ Consulting. North America s Top 50 LTL Carriers. Journal of Commerce Guide to Trucking. August Simonson, Steve. Uncover the Hidden Benefits of Outsourcing. Thompkins International. Accessed online March 27, Outsourcing.asp C.H. Robinson Gaining Efficiencies Through LTL Outsourcing 4

5 example 1 typical Hub-and-spoke LTL shipment: MORE THAN 10 touches in 5 6 days LTL freight is picked up by local delivery and taken to the satellite terminal. It is reloaded for delivery to breakbulk terminal. Freight is unloaded at a consolidation facility and crossdocked to a staging area, waiting for more freight going to the same area. Freight is reloaded onto a full truck. Freight arrives at satellite terminal for local delivery. Chicago Secaucus Los Angeles LTL freight from multiple terminals arrives at breakbulk terminal. It is unloaded, crossdocked, and reloaded on a double pup trailer. Freight is unloaded, crossdocked, and reloaded, bound for satellite terminals. TOUCH POINTS FOR FREIGHT loading crossdock unloading A closer look at LTL pricing and discounts LTL pricing is extremely complex, and is generally based on the National Motor Freight Classification (NMFC) established in Adrian Gonzalez, Director at Logistics Viewpoint, points out in his blog, As anyone who deals with LTL shipments already knows: calculating how much an LTL shipment will really cost is not an easy or straightforward process. 3 Gonzalez cites a research paper that states, It is necessary for the shipper to understand all of [the factors that affect rating], in particular the base rates to use, the NMFC rules, the carrier s rules tariff, the bill of lading terms and conditions, and existing fuel charges in effect at the time of shipment. Specialists who understand the nuances of the NMFC are few. The average shipper is not capable of negotiating as well as the carrier who has years of experience in the rules, classes and exceptions. 4 3 Adrian Gonzalez. Time to Rethink Less-Than-Truckload (LTL) Pricing. Logistics Viewpoint. December 1, University of Tennessee, Transolve, and Supply Chain Visions. Unpacking Transportation Pricing: A White Paper Challenging Transportation Pricing Models. December 1, C.H. Robinson Gaining Efficiencies Through LTL Outsourcing 5

6 It takes an LTL expert to analyze which is a better deal: a 70 percent discount off tariff X, or a 65 percent discount off tariff Y in a specific lane. LTL carriers do offer discounts to customers that are based on tariffs. These rate matrices, updated annually, define rates for all classes and weights for all zip code combinations. Shippers cannot always compare rates that are based on different tariffs. For instance, it takes an LTL expert to analyze which is a better deal: a 70 percent discount off tariff X, or a 65 percent discount off tariff Y in a specific lane. A greater awareness of their actual operating costs makes LTL carriers more sophisticated at charging customers, even to the point of developing lane-by-lane pricing. Some shippers have received 48 x 48 state matrices representing variable pricing per lane. It can be difficult for companies to directly compare rates from multiple LTL carriers without advanced technology. For all these reasons, many companies take this advice from author Matt Bernstein: Consider outsourcing if you focus a lot of time, energy, and money on an activity that is not your core competency. 5 Advantages of collaborative LTL outsourcing A collaborative outsource provider adds dedicated logistics professionals, who can use technology tools to the benefit of the enterprise. Through outsourcing, a company can automate routine functions, reduce system complexity, and integrate information so it becomes easier to manage. Providers can bring a patchwork of information from multiple LTL providers into one cohesive system. This information aggregation and systems integration brings clearer visibility to all LTL shipments, and can create a competitive advantage. The value of having a single system cannot be overstated. A survey by American Shipper magazine and the Retail Industry Leaders Association examined the relationship between company performance and a reduction in both the number of transportation systems used and the complexity of information. The research found that winners companies that outperform their peers use more systems than average companies, but have also been more aggressive at cutting back on the number of unique systems they use (see Figure 1). 6 This suggests that either the companies are integrating systems on their own or obtaining help with that integration. With all shipment details in one location, winners must have greater visibility to what is actually occurring in their supply chains than average companies. Greater visibility opens opportunities for freight optimization and savings. Technology enables LTL experts to appropriately choose LTL, small parcel, or full truckload. If the outsource provider also serves other LTL customers, they can look at freight from multiple organizations and consolidate LTL for full truckload economics. 5 Bernstein, Matt. When Should You Outsource Transportation? Inbound Logistics. November 1, American Shipper and the Retail Industry Leaders Association. International Transportation Management Benchmark Study Winners See Strategic Value of Visibility. November C.H. Robinson Gaining Efficiencies Through LTL Outsourcing 6

7 FIGURE 1 Number of International transportation management systems Source: International Transportation Management, Benchmark Report: Companies can leverage an outsource provider s technology and integration with their own systems to provide visibility throughout the global supply chain. Strong outsources also rely on the effectiveness of work with all types of carriers, from setting performance goals to measuring service, effecting supply chain improvements to working through process changes. Bringing consistent, high volumes of freight to the table creates a more predictable and stable environment that carriers seek. Electronic data interchange (EDI) capabilities that automate freight bill payment also add efficiency to the carrier s business. By leveraging volumes and using technology, they can compare pricing from multiple carriers and negotiate more favorable contract rates for the enterprise, giving a more efficient cost structure that can protect against undesirable price swings. Offering freight audit services, auto rating/auto quotes, and consolidated billing for all carriers on a single invoice simplifies administration. Whenever possible, consolidating long haul LTL shipments results in far more predictable and shorter transit times, reduced touch points from origin to destination, and less potential for damage. Finally, when markets tighten, carriers tend to favor the organizations that make it easy to conduct business, submit invoices, and receive payments. A collaborative LTL outsource makes an individual company look less transactional and more strategic. Companies also gain insight into all the nuances of LTL rates. With proper freight analysis, they can use the appropriate classification to eliminate extra fees and trace the freight from origin to destination to prevent delays. They can provide analysis that shows timely associations between customer buying patterns and profitability. And because skilled logisticians offer consistent customer experiences and insight into the frequency, quantity, size, and cost of shipments, they provide crucial insights into the total landed cost of product. Global and Cross-Border LTL Here are some points to consider about global LTL: LTL infrastructure is not as well developed on other continents as it is in North America. In Europe, LTL is known as groupage, and an LTL move can involve truck service as well as transport by inland waterway. Clearing customs on a per-package basis can be prohibitively expensive. If LTL shipments move across borders, consider consolidated customs clearance, since effectively crossing borders requires extensive knowledge of international transportation and documentation. Steve Banker of ARC explains, Take 60 to 120 individual parcels and clear them through your broker all at once before transporting by LTL across the border. One shipper walked with me through the math. If you assume a shipment of 100 packages or more, this shipper found it more than 10 times cheaper to do consolidated customs clearance, leading to savings of hundreds of dollars per shipment. 7 Some providers can transport LTL-sized shipments across country borders and have the technology to gather data on your global supply chain. 7 Steve Banker, Service Director Supply Chain Management, ARC Advisory Group, interviewed on Jan. 5, 2012, by Shosti Salamone, Research Analyst for C.H. Robinson Worldwide, Inc. C.H. Robinson Gaining Efficiencies Through LTL Outsourcing 7

8 KEY CONCEPT 5CRITERIA 1. Better Visibility. Your provider should be able to offer clear visibility to inbound and outbound orders at all stages. Greater visibility can lead to better fill rates, better on time deliveries, and fewer missed shipments. FOR SELECTING AN LTL OUTSOURCE PROVIDER 2. Optimization. A provider with large volumes of freight and one that has expertise in LTL, truckload, and other freight services can optimize all your shipments. Their scale can bring shipments from many companies together so freight can be consolidated, providing an option for cost avoidance. About us C.H. Robinson helps companies simplify their global supply chains and understand their landed costs. To help build smarter, more competitive supply chains, skilled supply chain engineers and logistics employees combine a deep knowledge of market conditions, practical experience, and proven processes. From local truck transportation to global supply chain management systems, from produce sourcing to consulting based on practical experience and logistics outsourcing, C.H. Robinson supplies a competitive advantage to companies of all sizes. Integrated technology helps companies manage their supply chain spend. This technology gathers data from across the supply chain and provides global supply chain visibility. 3. Data Gathering. As shipments are monitored, the provider should collect and report back on the details of all transportation services truckload, LTL, and more so you can track costs and measure service levels. 4. Business Analytics. Your provider should analyze your data to identify process gaps, assess the profitability of your customer delivery programs, and recommend ways to improve your supply chain. 5. Systems Integration. Expect to see systems integration and information sharing for all transportation services truckload, LTL, etc. that is enabled for the appropriate internal departments. Some providers can even help you create a website where customers can place orders and track the progress of their own shipments. For more information, please visit or our Transportfolio blog at Charlson Road, Eden Prairie, MN C.H. Robinson Worldwide, Inc. All Rights Reserved. C.H. Robinson Gaining Efficiencies Through LTL Outsourcing 8

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