Transportation costs have been on the rise since the 1980s. In 2017 alone, business logistics costs rose 6.2 percent to $1.494 trillion. The reason for this spike? Consumer demand. Raw materials and finished goods now spend more time in transit than on shelves, and this trend will continue. Companies can still reduce costs, however, by reshaping their supply chains to manage these expenses.
Capacity has exacerbated costs with land shipments. According to a recent survey by the American Transportation Research Institute, the truck driver shortage has been among the top three critical issues facing the North American trucking industry. Unprecedented demand and limited supply equate to more carriers calling the shots. Carriers now choose which shippers they work with, typically picking those easiest to do business with. Many even rate shippers online, making it easy for shippers to develop a reputation as either a good or bad partner.
Air freight costs are driven by fluctuations in supply and demand, as well as jet fuel prices, which rose by 50 percent in 2018. At the same time, more shippers are using air freight given trucking challenges. As a result, air freight rates have risen 14 percent year-over-year as of May 2018. The only transportation mode where supply is outpacing demand is with ocean transport. Due to the rise of “super ships,” most shippers have negotiated fairly strong deals on ocean transport, but these prices will likely spike in 2020 when carriers need to comply with tighter emission standards.
All of these factors, along with looming trade wars and tariffs, make it critical to optimize your supply chain. Here are strategies to help:
Become Better Partners
Shippers should establish long-term partnerships with carriers, looking beyond individual transactions to create mutually beneficial relationships. Do what you can to become easier and more profitable to work with. Also, try to arrange round trips or continuous moves.
When shipping by air, ensure your goods are moving onto the plane quickly by discussing capacity with logistics providers upfront. Also attempt to plan volumes, including packaging and lot sizes, to reduce variability and schedule shipments on slower days. Eliminate heavy or unnecessary packaging as weight reduction results in lower costs. In addition, maximize packaging efficiency. Evaluating split shipments and choosing packaging that’s transferable from one transportation mode to another minimizes breakdowns and repacking.
Carefully Vet Suppliers
Identify carriers that already have assets on your routes. Also look to align networks to major airport hubs, which allows more time to process orders and move product. Leveraging subscription services to obtain data points on pricing gives you a leg up on negotiations. Also, be sure to evaluate your total cost of ownership when vetting suppliers.
A lower-cost option might look great at first, but if reliability is an issue, causing you to expedite more goods, you’re costing yourself extra money in the long run. Don’t lose sight of the value of compliance, visibility, flexibility, and reliability. Whomever you work with, become a shipper of choice, which requires internal buy-in and executive champions.
Optimize Less-Than-Truckload (LTL) Shipments
Shippers that arrange for multi-bill pickups, or pickups for two or more shipments, will fare best as these scenarios lower carrier expenses, enabling them to pass along those savings. Standardized packaging goes a long way, as well.
When packages fit easily onto pallets, carriers can leverage racking systems and utilize space more efficiently and costs go down. Other effective strategies are to employ dynamic routing (or work with carriers that do) and to review accessorial charges, as these fees can comprise 8-20 percent of total LTL costs.
Choose the Appropriate Method
Don’t ship items faster than necessary. If it isn’t a rush order, it may make more sense to opt for ocean transit rather than air. Pre-position inventory, moving it early to take advantage of the most ideal transportation modes at the best prices. Also ensure that imported goods are coded properly to avoid unnecessary (and costly) customs delays, tariffs, and fines.
Improve your information systems. This includes Transportation Management Systems (TMS) and Warehouse Management Systems (WMS) to prioritize picks and minimize staging time and handling. Let data drive your decision-making. It can help balance transportation costs versus inventory carrying costs, improve demand and inventory planning, and limit split shipments, inventory transfers, repositioning, and expedited shipments.
Following these tips and looking at transportation in the context of total supply chain efficiency will help you keep your costs in check regardless of industry pressures.