When it comes to running a successful industrial business, counting every penny and watching every mile can make all the difference between thriving and being unprofitable. In the bustling world of logistics, keeping freight costs lean is akin to a competitive sport.
If you’re ready to get ahead of the competition, join us as we explore a range of freight cost reduction tips, designed to transform your industrial business into a highly efficient and cost-effective operation.
What Are Some Factors To Consider When It Comes To Freight Costs?
Before we dive into our helpful freight cost reduction tips, let’s quickly review key freight cost factors.
Freight costs are determined by a range of factors, including mode of transport (air, sea, or land), weight and size of cargo, type of packaging and protective measures needed for the shipment, fuel surcharges, port fees/duties applicable to international shipping, and so on.
It’s important to know the in’s and outs and take all of these factors into consideration before diving into freight cost reduction tips. Here’s a chart of some of the most common factors that can affect freight costs:
|Fluctuations in fuel prices impact freight costs through fuel surcharges.
|Longer distances lead to higher freight costs due to increased fuel consumption.
|Weight and volume
|Heavier and bulkier shipments typically result in higher freight costs.
|Mode of transportation
|Costs vary among different modes (e.g., truck, rail, air, or sea).
|Different pricing structures and fees from carriers can impact freight costs.
|Expedited shipments generally have higher costs due to faster transportation.
|Peak seasons may lead to increased demand, capacity strain, and higher rates.
|Additional services, such as liftgate delivery, can increase freight costs.
|Inefficient packaging can lead to increased freight costs.
|Customs and tariffs
|International shipments may be subject to customs duties and tariffs.
Top Tips for Reducing Freight Costs
Contract Steady Lane Volumes
Our first tip to reduce freight costs is to contract steady lane volumes. Essentially what this means is establishing a long-term shipping agreement with carriers and creating steady, predictable shipments. When you offer a consistent amount of work to your preferred carriers they will be more likely to offer better rates in exchange for the guaranteed business.
For example, Let’s say an industrial business, Company A, manufactures goods in Chicago and regularly ships them to distribution centers in Atlanta, Houston, and Los Angeles. Company A has analyzed its shipping data and determined that it consistently moves a significant volume of goods along these three routes, known as lanes.
To reduce freight costs, Company A decides to contract steady lane volumes with a carrier. They approach Carrier X and negotiate a long-term agreement to handle shipments along the Chicago-Atlanta, Chicago-Houston, and Chicago-Los Angeles lanes. In return for committing to a consistent volume of shipments along these lanes, Carrier X offers Company A more favorable rates than they would receive on a shipment-by-shipment basis.
As a result, Company A benefits from lower freight costs and a reliable level of service along these key routes, while Carrier X benefits from the predictability of a steady flow of business.
Ship On Off Peak Days
Scheduling your shipments on “off-peak days” means selecting days when the demand for shipping services is lower than usual within your specific industrial sector. Off-peak days can vary depending on the industry you’re in, as each sector may experience different patterns of high and low demand throughout the week.
Opting to ship on off-peak days tailored to your industry, you can capitalize on lower freight rates and a higher likelihood of finding available transportation.
Carriers are often more inclined to offer attractive rates during these days, as they aim to maximize their equipment usage and fill any extra capacity. Subsequently, off-peak days could lead to faster transit times, thanks to reduced traffic on roads and decreased congestion at transportation hubs. This, in turn, can enhance your supply chain’s overall efficiency.
Develop Good Relationships
Don’t overlook the power of relationships when it comes to your business. Don’t just go around looking for the best rates possible. Look for people that you can trust and that will be reliable. Over the long run, developing good relationships could save you money by:
Allowing you to negotiate: When you’re loyal to one particular carrier, they may be more likely to offer you better rates in return. On the contrary, if you’re constantly dealing with new carriers, they may not be willing to negotiate on price.
Getting priority service: If you had to prioritize a new customer or an old customer, who would you pick? Developing good relationships gives you the ability to get priority service, especially if you have last minute requests that need to be accommodated.
Assessing customized solutions: Strong relationships with carriers enable better understanding of your business needs, leading to tailored shipping solutions that optimize your supply chain efficiency and reduce costs.
Find a Consolidation Program Near You To Handle Smaller Shipments
Another strategy to consider in order to save money is using freight consolidation programs, particularly if your business involves shipping smaller items, such as car parts. By consolidating your shipments with others, you can reap the benefits of shared transportation costs and enhanced efficiency.
Let’s say you’re a manufacturer that produces car parts. You may frequently ship out smaller car parts including brake pads, engine filters, or gaskets.
In order to save some money, instead of taking LTL shipments, or even full loads, considering a consolidation program may be your best bet.
Other Benefits of consolidated shipping:
Reduced risk of damage: Fewer touchpoints during the shipping process mean a lower chance of damage or loss, as consolidated shipments typically involve less handling than LTL shipments.
Greater efficiency: Consolidated shipping allows businesses to optimize their shipping processes by reducing the number of partially filled trucks and maximizing the use of available capacity.
Environmentally-friendly practice: Consolidation reduces the number of trucks on the road, leading to lower fuel consumption and reduced greenhouse gas emissions.
Increase Delivery Lead Times
Getting your customers their orders faster is important, but shorter delivery times could also increase your logistics costs. If you’re looking to save money on shipping while still meeting customer demands, consider increasing delivery lead times.
The reason it saves money is that slower ship times generally equate to lower transportation rates. Carriers are often more likely to offer discounts for shipments with longer lead times, as they provide more time to plan and coordinate the shipment.
When it comes to delivery lead times, it’s important to find a fine line between customer satisfaction and cost savings. You don’t want to push lead times too long, but you also don’t want to be paying extra for speedy delivery when it’s not necessary.
Consider Minimizing Your Packaging
Packaging may seem like a minimal aspect from the outside looking in, but packaging could have a significant impact on shipping prices because of how your package affects everything from the weight and size of shipments.
Here are some ways you could save money through packaging:
- Standard packaging: The type of packaging you choose can have a significant impact on the cost of shipping your products. If you use custom packaging, it may be more expensive to produce and ship than standard packaging. Consider using standard box sizes and void fillers to reduce the cost of shipping. Also, make sure to use packaging materials that are lightweight to reduce shipping costs.
- Packing and storage: The size and weight of your product’s packaging can affect the cost of shipping and storage. If your packaging is bulky or difficult to store, it may be more expensive to ship and store. Consider using smaller packaging options or optimizing your packaging to reduce the overall size and weight.
- Inserts: Inserts like business cards, booklets, and user manuals can add weight and bulk to your package, which can increase shipping costs. Consider using digital versions of these items instead of physical copies or using smaller versions to reduce the overall size and weight.
- Freight: Consider sourcing your packaging materials from local manufacturers instead of overseas suppliers to reduce the cost of freight. While the materials may be more expensive, the reduction in shipping costs may make up for the difference.
Technology advancements continue to spur the logistics industry with more options than ever before when it comes to finding the best ways to save money on shipping. Below we will go over various ways to use technology as an advantage in saving money on shipping.
Transportation Management Systems (TMS): A TMS is a software solution that streamlines and automates the planning, execution, and tracking of transportation activities. By optimizing carrier selection, route planning, and shipment tracking, a TMS can help businesses save on freight costs and improve overall supply chain efficiency.
Internet of Things (IoT) devices: IoT devices, such as GPS trackers and sensors, can provide real-time data on shipment location, temperature, and other conditions. This increased visibility can help businesses optimize routing, reduce delays, and prevent spoilage or damage to goods in transit, ultimately lowering freight costs.
Route optimization software: These tools use advanced algorithms to determine the most efficient routes for shipments, considering factors such as distance, fuel consumption, and delivery windows. By optimizing routes, businesses can reduce fuel costs, vehicle wear and tear, and overall transportation expenses.
Blockchain technology: Blockchain can enhance transparency, security, and efficiency in the supply chain by providing a decentralized, tamper-proof record of transactions. This technology can help businesses reduce administrative costs, streamline customs clearance, and improve overall logistics efficiency.
Machine Learning/AI: Machine learning is transforming the way businesses manage freight costs by enhancing prediction, monitoring, and control capabilities. This technology is only hitting its stride. Over the next 10 years, machine learning is going to improve the reduction of freight costs by:
- Fast responses when things go wrong by giving you automated decision-making
- Improved learning of different market trends
- Better route optimization
- Dynamic pricing
- Improved warehouse management (e.g., inventory, order fulfillment)
Work With Us to Get Your Supply Chain Needs Headed In The Right Direction
Are you looking to optimize your logistics costs and transform your supply chain into a powerful competitive advantage? Look no further, as we, at PLG Consulting are a leading supply chain consultant, with over 20 years of experience in helping businesses like yours negotiate freight transportation and associated services across all surface modes.
By partnering with us at PLG Consulting, you can benefit from our wide range of support services, including cost benchmarking, negotiation strategies, RFP process management, understanding pricing and market environments, and much more. Our team of experts, with experience on both the shipper and carrier sides, will provide you with an insider’s perspective to help you secure cost and service-optimized agreements.
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