Transportation Costs Affect your Bottom Line – How to Benchmark Freight Costs

By Paul Benfer –

How to Benchmark Supply-Chain Costs

1.  Ask people in your industry who they use and why.

This is one area that competitors are usually more than willing to discuss.  Most new and small companies go through a painful learning curve while trying to  successfully manage their supply-chains. Ask your competition what their percentage  of supply-chain costs are versus sales. That is an excellent way to determine what  you should expect to pay.

2.  Investigate web-based transportation management systems (TMS).

Most new and small businesses don’t have the expertise to manage and select the  proper carrier(s) to handle their shipments. A web-based system is a great way to  secure competitive rates while learning the intricacies of LTL and truckload freight  movement.

3.  Don’t rely on one carrier to handle all of your supply-chain needs.

No one carrier does everything well. A few try to offer further discounts to bundle  your parcel and LTL together. Usually you can secure better rates and service via  other carriers that more than offset the bundled savings.

4.  Be open to new ideas.

Make yourself available to carrier and third-party representatives. They are the  people who can educate you in the basics of logistics.

5.  Save and develop your shipment database from day one.

Build a database of your shipments. You can do this by requesting a monthly service  report in excel from your carrier(s) or third party. Just about every major carrier  requires specific shipment data from you before they offer pricing.

6.  Know your carrier’s limitations of liability in regard to loss and damage.

All carriers move freight at reduced levels of liability, especially if the shipment moves  on a spot quote. Most coverage on spot quotes is limited to $1 per pound. If your  shipment is worth more than the coverage, the carrier will only pay up to the limit of  liability specified in the quote or in their rules tariff.

  1. If you will be shipping LTL, know your freight class.

Ask a carrier or third-party logistics provider to provide you with the National Motor  Freight Classification (NMFC) number for your product. Most freight is now classified  based on density.

  1. Talk to an industry professional.

Many companies have little or no supply-chain experience. Often they give the task  of managing transportation to the person in charge of shipping. That person usually  makes many mistakes on the way to becoming competent. Why not shorten that  learning curve by talking to someone who has worked in the industry for many years?  Why do you think most established organizations have hired professionals who have  advanced degrees in supply-chain and logistics.

    9.  Every dollar saved in supply-chain costs goes directly to your bottom line. 

Freight costs can eat up a significant percentage of your profit dollar, both in pure and administrative costs. Sending out broadcast emails for quotes can  initially  be effective in helping to benchmark truckload and large volume shipment costs, but not using that information to build a database to draw from will actually add costs in the long run. It is better to develop a database and use the technology available to save money on both the administrative and actual costs of transportation.