APQC recently interviewed Adam Robinson and Shannon Schreyer of Cerasis. Adam is a supply chain and logistics blogger, and Shannon has more than 12 years of experience in the freight and transportation industry. Adam and Shannon discuss what organizations can do to manage freight and transportation costs and remain efficient in today’s economic marketplace.
Question: Adam, in your blog post, How to Reduce Freight Costs part One: 11 Considerations that Go Beyond The Freight Rate you mention that not all carrier discounts are the same. You say to always dig below the numbers. Where are some obvious places to dig below the numbers that will help an organization figure out if a discount is real?
Adam: Discount is a funny word in the freight world. A rate base is probably the first area an organization should look at or question. An organization should also look at what rate base is being discounted. For example, what is better: a 50 percent discount off of a $100 rate or a 40 percent discount off of an $80 rate? An organization should not just look at a discount on the rate base. The rate base an organization is discounting or a carrier’s rate base is often called a CzarLite. Carriers will move different rates into different lanes to their advantage. An organization should look at all the options that are available, as well as freight classifications. If an organization has different freight classifications and it the organization not sure of those freight classifications, it might make sense to get a freight of all kind (FAK) rate.
Question: In your experience what is the most commonly overlooked freight cost issue that companies regret missing?
Shannon: Organizations do not pay attention to inbound cost. Organizations think of it as an afterthought. In the carrier world, whether it is a bid situation or is just a local carrier representative trying to negotiate rates, organizations tend to pay more attention to outbound costs. This attention usually guarantees a really good discount on outbound costs; however the little attention paid to third party collect and inbound shipments do not yield the same discounts. Analysis should be a core focus area. In my experience, whenever we conduct analysis for our customers we can typically save them money on their outbound shipments by placing these shipments in the right carriers’ hands and identifying the proper lane for that shipment. This is where the bulk of an organization’s savings come from because their discounts are not as significant.
Organizations also have to think about collect shipments because pricing for this is nowhere as deep as outbound shipment pricing. If organizations take a hard look at how they do their business both inbound and collect, it will allow them to recover some costs. In my experience a lot of companies that are large and have sister branches often want to allocate the freight cost back to the receiving branch, and the only way to do it is to ship it collect. The organization is shipping it outbound but shipping collect to its sister branch so that it can allocate that cost on the general ledger and make sure the cost is the way it should be. Unfortunately, collect shipments just do not have as good a rate as outbound shipments. Cerasis combats that issue by allowing the shipper to send its shipments prepaid. Then we physically bill the receiving branch. This allows the cost to be allocated properly on a general ledger statement.
You can read more about what Adam and Shannon have to say about how to manage freight and transportation costs in the interview Reducing Freight Cost.