Are your freight costs under control?

Do you know your company’s combined freight costs? Do you use the right modes of transport? Do you get the best terms? If you can answer ‘yes’ to these questions you belong to a small minority.

Expenses for freight have many elements. Freight makes up a relatively large share of costs in most trade and production companies. Many companies also have a logistics department dedicated to handling the shipments. Despite this most companies can save large amounts on freight by making a detailed, cross functional review of the costs.

To begin with you need to get complete overview of the costs. Make sure that it covers all relevant costs. For instance, courier and sea freight costs are rarely booked on the same account and if they are it is still beneficial to understand how much you spend on each transport mode.
And what about the freight costs which are passed on to your customer? They might zero out in the accounts but they can still be used when negotiating the freight terms. And these costs influence your competitiveness.

Companies have a tendency to maintain the modes of transport they have ’always’ used. When a company experience crisis, growth or change the product range it should evaluate whether you still use the most optimal mode of transport. Such evaluation should take place every 3-4 years in all cases.

When evaluating the modes of transport and the associated pros and cons there are several elements to consider in addition to price and lead time:

• Shelf life of the product
• Weight and dimensions
• Value of the product
• Risk of pilferage and other loss
• Special requirements, e.g. fragile products or products requiring temperature control/ventilation

There is also a tendency to maintain the same suppliers. Despite own claims then there are no supplier who is an expert in all modes of transport and geographical corridors. Of course, the number of suppliers should be limited but ensure you have a market leader for the respective shipments. Depending on your volume you have different alternatives for suppliers. For instance, if you have container sea freight from China to Europe then you can with a few hundred 40’ containers per year get a contract directly with the shipping line. However, they will not assist with customs clearance and offer less credit.

Finally, it pays off to understand how the supplier establishes their sales prices. Again, using container sea freight as an example, it is not only origin and destination which matters. It is also volume, weight, container type, time of the year, seasonality, availability of containers and the general competitive scenario – among other.

If the above was not enough the prices change frequently and significantly in several modes of transport. What was a good price last week is outdated today.
 
To analyse and stay on top of all they considerations can be very time consuming and difficult to find time for among the daily deadlines in the logistics department. However, many companies can improve the bottom line significantly by investing resources in this.