The 7 Secrets To Slashing Your Freight Expenses In Tomorrow s Economy

Transcription

1 Industry Insider Reveals The 7 Secrets To Slashing Your Freight Expenses In Tomorrow s Economy By Dave Gerlach Freight Solutions Expert GlobalTranz

2 If you re like 95% of shippers, the last 2 years have been a one in a lifetime event to drastically slash your freight costs. With the economy going into the tank in 2008, the Truckload and Less-Than-Truckload Carriers were suddenly faced with an abundance of capacity. Overnight they went from profitable growth to survival mode. According to Andy Ahern of consulting firm Ahern & Associates, 5500 trucking companies went bankrupt in 2008, 2200 truckers went bankrupt in 2009 and 2500 to 3000 trucking companies are projected to file for bankruptcy in To survive, the carriers drastically reduced their rates to increase market-share. A few carriers even attempted to reduce capacity by reducing rates low enough to drive weaker competitors out of business. To add to the frenzy, hundreds of Third Party Logistics Companies began springing up everywhere. They were capitalizing on both the excess capacity and their buying power to provide even small and medium size companies with rates carriers traditionally offered to very large shippers.. Ask your Logistics/Traffic Manager, I guarantee you that he or she is routinely swamped with 7-11 phone calls a day from both carriers and third party logistics companies promising larger discounts. I bet they can t wait to get back to some type of normalcy. The last 2 years have definitely been a Buyer s Market and unfortunately if you are one of the few who haven t participated in this drastic discount reduction period, I m afraid that you missed out on this once in a lifetime opportunity. Whether you missed out on this buying opportunity or were able to take advantage of it, the marketplace is now starting to change. Capacity is beginning to tighten up as the economy is starting to show signs of improvement. Also, diesel prices are rising again and have topped $3.00/gallon. The Truckload Carriers have even started to increase their rates to take advantage of increased business levels and reduced capacity as many carriers have exited the marketplace. The Less-Than-Truckload Carriers are next. The LTL pricing war has ended. First quarter shipments levels are up for many of the LTL companies but profits have not returned. LTL Carriers are now beginning to prune unprofitable business and are positioning themselves for a slow, gradual recovery back to profitability.

3 My name is Dave Gerlach and I am willing to share with you how you can still reduce your overall freight expenses when capacity becomes tight and carriers start to increase their rates. This report will not teach you how to beat up the LTL Carriers for better pricing but instead how you can work with your LTL Carriers to reduce costs for all parties. Why and I doing this? Because as a 27 year veteran of the transportation and logistics industry I am compelled to help small and medium size shippers apply the same strategies as Fortune 1000 companies to reduce their freight expenses. You see I am an expert in Transportation and Logistics. I was worked in Inventory Management while I was enlisted in the U.S. Air Force and then for 24 years working for one of the largest LTL Carriers in the world. I excelled in both operations and sales. I was a National Account Executive providing transportation and logistics solutions to Fortune 1000 companies for 15 of those years. I m frustrated that Fortune 1000 companies always seem to have the resources, tools and connections to help them find creative ways to reduce their freight costs. Now I want to bring those same resources, tools and connections to help small and medium size companies reduce their freight costs and compete with the large corporations. 1. Benchmark Your Freight Costs I m a firm believer in the saying You can t measure when you don t manage. So how do you know if your freight costs are negatively impacting your company s profitability unless you correctly benchmark your freight costs and implement strategies for reducing those costs? You re probably already measuring your freight costs as a percentage of sales. While this may be a good quick measurement, it doesn t tell WHY your freight costs are either increasing or decreasing. Better indicators to measure are: - Cost Per Hundred Pounds (Cost/CWT) - Average Shipment Size - Average Length of Haul - Average Class

4 The reason is LTL Freight Rates are determined by 3 things Weight of the shipment Class or density of the shipment Distance the shipment is traveling If your freight as a percentage of sales is increasing and your carriers have not taken increases it s most likely that your shipment weight has decreased, shipment density has decreased or your customers are located farther away from your shipping facility. If any of these charges are occurring with your company, your Cost/Cwt is increasing. You will also understand why your freight as percentage of sales is increasing as well. 2. Product Density LTL Carriers costing models usually incorporate the following costs when determining the profitability of a customer s freight: - Pick up Costs - Dock Handling Cost - Linehaul Costs - Delivery Costs For nationwide LTL Carriers, linehaul represent the highest component of overall costs. This is because their average shipment length of haul is well over 1,000 miles vs. 200 to 500 miles for regional carriers. When determining linehaul costs, the carrier s Pricing Department needs to know how much space your freight takes up in their trailer and the corresponding weight. The more space your shipment occupies in the trailer the more linehaul costs are assigned to your shipments. To ensure your freight is not assigned excessive linehaul costs I urge you to consider the following suggestions. 1. If your product is a density based item, ensure that it is packaged and shipped in a manner that increases the density which lowers the class and thus your freight costs. For example, if you re shipping Plastic Articles and the density of you product is 9.7 PCF it will be rated at Class 100 (8-10 PCF). However, by changing the packaging you increase the density to 10.3 PCF, your product will be rated at class 92.5 (10-12 PCF), which would result in a significant savings.

5 2. The Class of your product is based upon three things: a. The density of your product, b. The value of your product c. The loadability of your product inside the carrier s trailer. If your product is not a density based item but carries a higher class because it is determined to be of higher value or incorrectly determined to have poor loadability, get with your Carrier Sales Representative to negotiate a FAK for your product based upon the density and not the National Motor Freight Classification. You may have to accept a lower release value in exchange for the FAK but if your product does not have a history of damage claims and the savings is significant, the FAK should result in significant savings for you. For example, if your product is tendered on square pallets, has a claim ratio below 1% and the density of 16 PCF (characteristics of class 70) but the NMFC Item considers this product to be Class 92.5, get with your Carrier Sales Rep. Work out a comprise to rate your product at FAK 70 which is justified based upon the characteristics of your product and in turn, you ll accept a lower release value in the event of a claim. This would be a win/win for both your and the Carrier. 3 Increase Your Minimum Size Order If your company does not require your customers to order in minimum size order quantities or has very low minimum order quantities, you may want to evaluate the savings associated with increasing your minimum size orders You see, the smaller the LTL shipment, the higher your Cost Per Hundredweight. Your minimum order quantities may be encouraging your customers to order in more frequent and smaller orders resulting in increased freight costs for your company. For example, say your product is Class 85 and you have a 75% discount with your carrier. On a 250 lb. shipment from Chicago to Dallas your net freight invoice would be $ or $60.18/CWT. If you increased the minimum order to 500 lbs., your net freight bill would be $ or $42.21/CWT which is a savings of 30%! Not only will you be able to significantly lower your freight costs, but you may make your freight more attractive to your LTL Carriers. This is because small, minimum charge shipments are usually not profitable for LTL Carriers. This strategy can also be another win/win for you and your carrier.

6 4 Utilize Regional Carriers For Shipments <500 Miles Although national carriers have excellent terminal networks which cover many points of the country, they are not the most economical choice for your shorter length of haul shipments. Having one carrier handle all your shipments may be easier for your company to implement operationally, but in addition to national carriers you should explore what regional carriers can do for you. Because national carriers have to support a vast network of 250 to 300+ terminals they have a higher network cost. Also, they typically have higher overhead costs to support their corporate offices and multiple layers of management. Unfortunately, the vast network and overhead costs results in national carriers having higher costs to support and pass along to their customers. On the other hand, regional carriers will have only a limited number of terminals to operate, move their freight through a less expensive direct-to-terminal model vs. the national carriers hub and spoke model and have less management and overhead costs. All of these combine to provide a more cost efficient option for shipments less than 500 miles. 5 Pool Distribution / Cross-Dock In terms of Cost Per Hundredweight, Truckload is much more economical than Less- Than-Truckload. That being said, if you don t ship in larger TL Volumes you will not be able to enjoy the savings associated with TL. However if your average shipment weighs 2,000 lbs or more or have a lot of smaller / low-dense shipments destined to a small geographic area, Pool Distribution or Cross-Dock you may be a cost effective option for you. Pool Distribution allows you to bypass the more expensive longhaul LTL Network and takes advantage of the low costs of both TL and Regional LTL. You basically will load LTL shipments to a geographic region on a TL Carrier. The TL Carrier will take the load to your designated Regional LTL s Carrier s dock for final delivery. For Pool Distribution to work, you will need three things: - Relationships with TL Carriers - Competitive pricing with various Regional LTL Carriers - Enough shipment volume to fill TL s daily or every other day Maybe you don t believe Pool Distribution is a good alternative for you because you don t have the daily shipment volume required to make this work. If this is the case,

7 don t forget about those times when you have Special Projects or Peak Shipping Periods. Maybe Pool Distribution will be a good alternative during these busy shipping periods. 6 Transportation Management Systems (TMS) / Route Guide Implementation So you put your LTL out for bid and are very pleased that you have negotiated the best rates from several quality LTL Carriers. You now need to implement processes to ensure the most cost effective carrier for each shipment is selected by either your Shipping Department, Purchasing Department, Sales or whoever has the authority to select carriers for your shipments. Two common processes are Transportation Management Systems (TMS) or develop Route Guides. TMS is a software system used to select carriers based upon your chosen criteria (usually price and/or transit times). A Route Guide is a static process that normally allows an individual to select from 1-3 carriers for each state to state combination. The advantage of a TMS System is that it is more dynamic than the Route Guide. It can be programmed to select the lowest price carrier by several variables (ex. 3 or 5 digit zip code, shipment weight, change in carrier s pricing, etc). However, implementation of TMS can be more expensive than a Route Guide. Although a Route Guide is less expensive to implement, it does not always select the lowest priced carrier for each shipment as it is more of general state-to-state matrix. Whichever process you implement, you must chose one and must monitor for compliance. If you don t, your company will not reap the full benefits of you negotiating the best rates from your carriers. 7 Quarterly Carrier Business Review Meetings I can t emphasize enough the importance of conducting formal quarterly business review meetings with your carriers. The carrier representatives of today are now armed with valuable information regarding your business. If you re not collaborating with your carrier to review this information, you are missing out on tremendous opportunities to reduce costs, for both you and your carrier. Not only do the carriers have valuable information regarding your business and can segment it into a variety of criteria (shipment size, lane data, customer, length of haul, average class, etc) they are now able to let you know which portions of your business are negatively impacting their margins.

8 By working with your carrier to help them reduce their costs, must result in your company sharing in the carrier s margin improvements as well. However to take full advantage of this strategy, you must be able to analyze the carrier s complicated costing data as it takes trained eye to fully understand where the cost drivers are and what is your most profitable business for your carrier. Now that the LTL Pricing Wars are coming to an end, what will you be doing differently so that your rates don t increase 5%, 10% or even 15% over the next two years? The time of give me your best discount is now yesterday s strategy. You need to think and act creatively if you want to avoid substantial increases to your freight budget and deterioration of profits to your organization. Do you have the time, personnel or experience to implement these strategies? Are you aware of other strategies to reduce your freight costs? Over the last 16 years, I ve helped Fortune 1000 Companies (Abbot, Snap-On, True Value, Medline, Nalco Chemical, Rustoleum, Kohler, Pentair, Hamilton-Sundstrand, Follett, MillerCoors) implement these ideas.. as well as many others.. to reduce their freight expenses. Now my mission is to help small and medium size companies implement some of the same cost reduction strategies as their Fortune 1000 competitors. My goal is to help them compete against these large corporations and increase profitability. To assist me in my efforts I ve recently teamed up with GlobalTranz. GlobalTranz provides small and medium size companies with the logistics solutions, technology and rates that Fortune 1000 companies normally have access to. Since our beginning in 2003, GlobalTranz has helped over 10,000 clients reduce their freight costs and improve efficiencies within their organizations. I m proud to say that GlobalTranz has made Inc. Magazine s Fastest 500 Growing Private Companies in both 2009 AND This can be attributed to our success in providing superior freight and logistics solutions for our clients.

9 To get started, I am willing to provide you both a Free Consultation and Freight Savings Analysis Report. After completion of the Consultation and Analysis, I will be able to determine which of these strategies will work for your company and the approximate freight savings available for your organization. After the receiving the Free Freight Savings Analysis Report, you will be able to decide if you want to: Not do anything Try to implement these strategies on your own Become my client and have access to my expertise and GlobalTranz s logistics solutions, technology and rates to help you reduce your freight costs at no cost to you!! Dave Gerlach Freight Solutions Expert GlobalTranz 7528 Pershing Blvd. Suite B-201 Kenosha, WI Phone: dgerlach@globaltranz.com