March 2013 | Commentary | 3PL Line

Are You Paying Too Much for Transportation? Benchmark Carrier Activities to Find Out

Tags: Finance, Transportation

Mike Challman is Vice President, North American Operations, ChemLogix LLC, 215-461-3800

If you haven't reviewed your carrier activity in the past 12 to 18 months, there's a good chance your transportation costs are more than what you've planned, higher than the rates listed in your routing guide, and, quite possibly, higher than competitive market rates.

Over the past year, shippers have begun to feel the pinch of increasingly limited carrier capacity, and this scarcity will intensify as the economy continues to improve. New legislation such as Hours of Service rules, a growing driver shortage, and fleet size reduction by many carriers during the recession are just a few issues that have led to a premium being placed on quality carrier capacity.

As a result, freight costs are rising—but many shippers may not realize it. It's easy to see the impact of direct carrier rate increases, but harder to recognize the effect of a greater incidence of spot rates, or having to reach deeper into your routing guide to find carriers that will move your loads at their contracted rate. To top it off, continued high fuel costs mean steep fuel surcharges.

As a result of these factors, you may be surprised to learn that your freight costs are much higher than you thought, and represent a more significant percentage of the delivered price of your products.

To remain competitive and understand actual transportation costs, shippers need to closely monitor their network activity to get an accurate picture of how they are buying in the constantly changing transportation market. If you are making carrier selection decisions at the site level—even with a routing guide in hand—there is no guarantee those decisions are consistently cost-effective.

History Lesson

Benchmark studies review shipment history, carrier assignments, and freight invoices to reveal what you actually paid for transportation, and compare your buying to similar shippers. By relating your shipment data to market rates for your specific modes, lanes, and geographic regions, a benchmark study can determine if your rates are best in class, market competitive, or higher than the market.

Through this analysis, a benchmark study can provide actionable insight to the competitiveness of your company's actual freight rates. It can also serve as a basis to negotiate significant improvements to your carrier agreements, while revealing the rates you need to maintain at their current level. Finally, the study can help you control and standardize accessorial charges and fuel surcharges across your carrier base.

Grab Your Partner

Compiling and analyzing this type of study requires significant time and resources, as well as knowledge about current and accurate market freight rates, and related information shippers might not have access to.

A knowledgeable third-party logistics (3PL) provider possesses up-to-date market intelligence, an established carrier network, and an experienced team of transportation professionals who can perform a thorough benchmark study. Choosing a non-asset-based 3PL can offer an added advantage of an asset-neutral carrier solution—not one that might favor the provider's own trucks.

Using benchmarks, 3PLs can take you to the next step in negotiating rates with carriers for service in specific lanes and regions, and identifying new partners to replace those that have priced themselves too high for your business.