Keep an Eye on Your Freight Costs
07/19/2016
Phillip Riback - Vice President for Development
You go to Amazon to order a set of 850-count sheets to match the new paint in your bedroom. You read the reviews, select the size and color and add them to your shopping cart. You’ll have them shipped to your home. You decide that you don’t need gift wrapping; after all it’ll just be more packaging to open. You advance to the payment options, select which credit card to use. Finally you get to the shipping charges. It always seems to be the last thing that everyone thinks about.
It’s the same with most corporations and their freight spend. After concerns about the rent, the personnel, website design, electricity, phone systems, computer systems, round or square waste baskets, the color of the chairs in reception and the hold music comes the freight spend.
When you were shopping at Amazon, did you go for the “free” shipping with your Prime account, realizing you’ll wait 5-10 business days? Did you decide to pay $18.39 to get it in two days? Or $38.80 to get the sheets tomorrow? Do you have any idea what the components are of those freight charges? Is Amazon in fact paying $15 to get the sheets to you tomorrow and pocketing the difference? Disclaimer: I have no idea as to whether Amazon profits from their shipping charges and my understanding is that they do not.
Surprisingly, in most corporations, the financial person who can tell you how much the hold music and the voice-over cost, can’t even describe what an accessorial charge is, let alone how much the company pays for them. Same with line hauls, diesel fuel surcharges, time-critical services and every other component of their freight costs.
Recently, while preparing for an RFP for his LTL freight, a client of ours realized that one carrier had been charging them a $50 reweigh charge on almost 80% of their shipments. Although that carrier was ostensibly the least expensive for those lanes, once that fee was figured in, they no longer maintained that distinction. The carrier refused to waive the fee in the new pricing offer, so it was figured into the bid calculations for the RFP.
Going forward, that carrier received a lot less freight as the shipping managers are assuming a $50 charge on each shipment. But that carrier had been taking 5-10 shipments daily. So that’s $50,000 - $100,000 annually in additional freight charges that were recognized only in retrospect. As the charge was part of the rules tariff, it was legitimate with no chance of a refund.
If our client had used a tool to show the components of his freight on a regular basis, the frequency of the charges would have been noted earlier, prompting routing changes and significant savings. Whether you pay your freight bills or outsource to a third party, make sure you have visibility of the components of your freight spend.
Hopefully when the sheets come, they’ll look like the color on the screen and match the new paint. Or at least if you have to return them, you won’t pay the freight. Sleep well.
1/11/2017 - Where Should You Locate Your Next Warehouse?
6/21/2016 - Negotiate With Your Carriers for Freight Savings
