Transportation Cost Optimization-Top 5 Action Items

E-Commerce and other direct to consumer sales channels continue to be one of the fastest growing transportation segments for distribution dependent companies. The quantity and variety of products that ship directly to consumer span the gamut from small personal items to kitchen cabinets, furniture, and truck body parts.

Articles that provide tips on how to reduce your shipping costs are being written and published every day. The majority of the small parcel and LTL articles refer to contract negotiation as the key component of cost savings. With 70% of companies supporting more than one sales channel (e-commerce, retail, distribution, wholesale, etc.) the matrix of carriers and services required to service and support their efforts are growing in complexity.

Is contract negotiation the key or is cost optimization the real secret to success?

While UPS and FedEx offer a full menu of parcel and LTL freight services, as a consumer, you pay a very high price for this convenience. FedEx and UPS freight services are consistently number one and two respectively in revenue, and regional parcel carriers only account for a small percentage of the domestic parcel market.

"The Amazon Effect" is the greatest paradigm shift since UPS and FedEx introduced full package tracking and guaranteed services many years ago. Even while waiting for delivery drone approval Amazon is enhancing their clients' expectations with same-day and weekend delivery options. Until recently, UPS/FedEx have had a difficult time executing these “Amazon Effect” delivery options, and that service gap has caused a multitude of regional and specialty delivery companies to be born.

OnTrac is a perfect example of "The Amazon Effect"; they now service over 65 million consumers within eight western states.

The guiding principle of all delivery companies is maximizing stops per hour and revenue per stop. These regional and specialty delivery companies are hungry and have aggressive pricing in place to procure new business. Regional and specialty carriers do not have the overhead or limitations of UPS/FedEx so they can offer base rate discounts, reduced or waived assessorial surcharges, improved time in transit and reduction in damages. While regional carriers are not available in all markets, you need to know what your best options are in your markets.

The key to cost optimization dictates an understanding of the characteristics of your products, and the requirements of your sales channels. It is a constant balancing game of time in transit, cost, and the delivery expectations of your clients.

Your Top 5 Optimization Action Items

(carrier rate negotiations is LAST)

1. Understand your products and markets.

  • Types of shipments - order versus non-order generated. Examples of non-order generated shipments include marketing material, product samples, warranty repair, replacement parts and back orders.

  • Where are the shipments generated? Production warehouse, desktop, drop-ship network, multiple locations?

  • Sales channel support - Manufacturing, distributor, retail, e-commerce, international or combination thereof.

  • Expectations of clients and consumers for time in transit and cost.

2. Understand the carriers, their services and pricing models based on your shipment type, physical location and customer demographic.

3. Establish the correct carrier matrix for your needs.

4. Implement the correct technology-based, multi-carrier shipping software framework to service your carrier matrix.

5. Carrier rate negotiation is the last step in your optimized shipping process.

Bottom-line, there are no simple answers; leveraging the right technology to manage shipping complexities on a daily basis is your key to true cost optimization.

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