12 Smart Ways to Reduce Your Freight Costs
ARTICLE SUMMARY A common conundrum for companies is how to reduce their freight costs, which due to a recovery in demand following the Covid-19 pandemic have skyrocketed. Putting a lid on escalating freight costs has now become more important than ever. There are a number of smart ways to achieve this goal. Here, in brief, are 12 of them: Define your freight profileRecalibrate your speed of deliveriesMaximise your carrier capacityConsolidate non-urgent shipmentsJoin forces with other shippersSite your distribution centres cleverlyLook beyond local carriersChoose the right serviceNegotiate for off-peak timesReduce your dunnageMinimise LTL shipmentsMake an in-depth cost analysis This article takes an in-depth look at each of these points and offers advice on how to meet the significant challenge of reducing freight costs. One of the most common questions I get asked is, How can I reduce my freight costs? In answering this question I start by highlighting the wrong way to go about it. The first thing people try to do is attack the rate itself—the dollars per ton, the dollars per pallet, whatever it is that you are paying. Let’s say you are paying $30 per pallet for delivery and you try to get $29 or $28. That’s really not the way to go about it because you need to realise that freight transport is a very low margin activity and if you’re trying to reduce the price, you’re not going to get very far. Instead, it’s often better to try and reduce the cost to the freight company of shipping your products, so that they can lower their price to you. A Dozen Possibilities to Cut Freight Costs Now let us look at some of the right ways to reduce your freight costs. I also go over some of this ground in a Supply Chain Secrets YouTube video, which I invite you to watch. 1) Define Your Freight Profile Are you paying a ton rate or a pallet rate appropriate to your freight profile? For example, if you are paying an hourly rate for deliveries, is that necessarily going to create the right behaviour in the transport company to get your deliveries done efficiently? So think about the rate structure, whether it is per ton, per pallet, per carton, and try to ascertain if it it’s the one most suitable for your freight profile. If not, it could be worth renegotiating the structure. 2) Recalibrate your Speed...
Read MoreWhy Large Companies Increasingly Opt for 4PL Services
SUMMARY: Because 4PL providers handle a company’s entire chain, including challenges that are thrown up by advances in technology, they are increasingly being favoured over third-party logistics (3PL) providers, especially by big companies with complex supply chains. In its simplest form, fourth-party logistics is a model in which manufacturers hand over the entirety of the organisation and oversight of their supply chain to a 4PL provider. By contrast, the third-party logistics model is where a manufacturer retains oversight of its supply chain but outsources such processes as warehousing, shipping, packing, and distribution to a 3PL provider. When the COVID-19 pandemic began wreaking havoc in global supply chains, smaller companies turned to 3PL providers for help. Bigger companies with complex global supply chains, however, realised they needed sophisticated digital technologies and streamlined supply chain processes offered by 4PL providers to help them ride out the storm. The concept of fourth-party logistics has existed for some time but only truly began evolving with the arrival of Industry 4.0—the digitisation of manufacturing. Because 4PL providers handle a company’s entire chain, including challenges that are thrown up by advances in technology, they are increasingly being favoured over third-party logistics (3PL) providers, especially by big companies with complex supply chains. The Differences between 4PL and 3PL It will be helpful at this stage to determine the differences between 4PL and 3PL. The terms are often mixed up and some firms claim to be 4PL providers when in fact they only provide 3PL services. What is 4PL? In its simplest form, fourth-party logistics is a model in which manufacturers hand over the entirety of the organisation and oversight of their supply chain to a 4PL provider. What is 3PL? The third-party logistics model is where a manufacturer retains oversight of its supply chain but outsources processes such as warehousing, shipping, packing, and distribution to a 3PL provider. The key difference between the two can perhaps be explained in the following example: A 3PL provider working with a paint manufacturer may package and store products as well as transport them to retailers and/or customers. Unlike a 4PL, however, it won’t manage the paint maker’s entire supply chain. There are, of course, some other important differences between the two types of providers: 4PL is, in general, better suited for medium-to-large businesses, while 3PL is more suited to small-to-medium businesses.4PL companies operate at the optimisation and collaboration level...
Read MoreBoom Time for the Shared Economy within Supply Chain
SUMMARY: For most people, the shared economy is best illustrated by the Uber and AirBnB concept of crowdsourcing and convenience services based on digital platforms. In logistics and supply chain management, however, transport and warehousing are the most significant sharing processes thanks to a welter of economic benefits for all parties—and the trend is accelerating despite the dampening effect of the COVID-19 pandemic. Logistics providers are driving the shared economy within the supply chain, offering shared services to customers such as higher filling rates of transport vehicles, better utilisation of warehousing space, reduced logistics costs, and/or a lower carbon footprint. The World Economic Forum estimates that by 2025, 15 percent of trucking will be via shared transport platforms and shared warehousing will comprise 20 percent of the market. In whatever form it takes, the shared economy will to a large extent shape the way we do business in future. For most people, the shared economy (also known as the gig economy) is best illustrated by the Uber and AirBnB concept of crowdsourcing and convenience services based on digital platforms. The technologies and business models supporting these platforms are also being applied to logistics and supply chain management, especially across activities such as warehousing, transportation, and shipping—with astonishing success. Why Businesses, Large and Small, Think it’s Fair to Share Logistics providers, both 3PL and 4PL, are driving the shared economy within the supply chain, offering shared services to customers such as higher filling rates of transport vehicles, better utilisation of warehouse space, reduced logistics costs, and/or a lower carbon footprint. The World Economic Forum estimates that by 2025, 15 percent of trucking will be via shared transport platforms, and shared warehousing will comprise 20 percent of the market. To get a better understanding of how the shared economy works within the supply chain, let’s take a look at some examples: Example #1: Amazon Flex With the growing trend towards online shopping, e-commerce giant Amazon in 2015 turned to independent contractors—basically anyone with a car—to deliver parcels to homes and businesses. The service, known as Amazon Flex, takes care of a portion of the company’s last-mile deliveries which, with some five billion items delivered each year, is beyond the capabilities of standard delivery companies. Since its launch in the United States, the Amazon Flex system has spread into many parts of the world, including Canada, the United Kingdom, Europe, Asia, Australia, and South America....
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