Generally, the expectation is that transportation rates will continue to increase this year.
“Shippers can expect a 5 to 7 percent increase in freight rates for 2019,” says Matthew Fink, vice president of logistics at AMWARE Companies. “Some will see higher increases and some lower, but very few should see double-digit increases. Even fewer will be in the 2 to 3 percent range.”
A key driver in the capacity shortage is the sustainability and pace of ongoing economic growth. Continued 3 to 4 percent GDP growth is great for most shippers, but will come with increased logistics costs.
“It is a great issue to wrestle with,” he says. “But certainly the byproduct of increased shipping costs has to be dealt with.”
Smart Business spoke with Fink about how companies can lower their shipping expenses even as costs rise.
What are the market trends that are creating tightened capacity?
General market volatility should be muted as the marketplace has integrated the Electronic Logging Device (ELD) mandate. The ELD mandate effectively reset the normal amount of available capacity and that learning curve has largely subsided.
Capacity is expected to remain tight and rates will continue to increase as there just aren’t enough new drivers entering the vocation to replace those that are retiring. An aging workforce, lack of new entrants, economic growth and an already low unemployment rate mean there are few prospects for relief in calendar year 2019.
What can companies do to lower their shipping costs?
Companies should work to be a shipper of choice. That means making their freight attractive to motor carriers. Doing so means it’s more likely that their products get moved by carriers when they’re faced with a choice of which shipment they are going to accept.
Make sure procurement activities are addressing relationships in the carrier networks and their transactions are as efficient as possible for all stakeholders.
Some of this can be done by taking steps to increase lead time. By giving planners and carrier partners more notice, and some leeway on delivery times, companies will get a higher acceptance rate and keep their shipping rates down.
Companies can also significantly lower their costs by fully utilizing each outbound load. This may involve discussions with customers, but they’re likely to be receptive if some of that benefit is shared with them. Ask them to increase their order size and offer to pass a portion of the freight savings on to them in exchange.
Often overlooked are opportunities with inbound transportation. Too often shippers allow their vendors to select the transport options for raw materials or inbound freight. There typically is no incentive for inbound suppliers to pick the most cost-effective option, so they choose the one that is most convenient for them, which passes the costs back to the shipper.
Additionally, the acceptable practice is to add margin on top of freight costs, so that supplier is likely marking up an option that is already not the best. The leakage in inbound is hard to see directly as the buyer doesn’t see the freight bill. But once the company starts controlling the freight on inbound freight, it can realize a 15 to 20 percent reduction in transportation costs on those shipments.
Plus, the company may be able to match up those inbound shipments with those already shipping outbound to create more cost-effective round trips. For companies that operate a private fleet, this is a must. For those that outsource their transportation, their freight just became very attractive.
How can companies better manage their shipping to realize greater cost savings?
The better third-party logistics providers teach and coach as much as anything else. A really good supply chain partner should be asking their partners some tough questions. If they are truly operating in the company’s best interests, they should be an integral part of operations, not just a vendor.
A quality third-party logistics provider can create a return on investment that is greater than their expense. That requires effort and commitment on the part of both parties, but companies can outpace the competition by using that expertise to their advantage.
Insights Logistics is brought to you by AMWARE