Optimizing Freight Carrier Contracts Drives Bottom-line Profits
Posted on January 24, 2019
Written by broussard_press
Previously, we’ve discussed the most common challenges facing the Director of Logistics in the move to digitize the supply chain. We’ve also covered the freight management technology and best practices that the Director of Logistics can introduce to impact your bottom line. Now let’s explore the benefits of optimizing contracts with your freight vendors to drive profits.
Often, organizations have an arrangement with a freight carrier (FedEx, UPS, YRC/SAIA, etc.) that they’ve used for years. While the shipping process has become comfortable, it may not be financially advantageous for the shipper. Optimizing your carrier contracts can present measurable cost savings that impacts your bottom line. So how do you begin?
Start by analyzing the freight data. What are you truly spending on freight currently? The most common areas of contract optimization in freight management are parcel and less-than-truckload (LTL). Dig into that data to identify the areas needing the most focus and improvement.
Next, know all the factors in your contract for your specific characteristics. If you don’t know your freight classifications, you aren’t going to be effective in negotiating with the carriers. There are a lot of variables that go into the negotiated rates such as:
- accessorials and servers used,
- percent of minimum,
- dim factor,
- rules and F.S.C., and
- many more.
“These contractual carriers have overcomplicated a simple process,” Mike Broussard, Vice President of Broussard Logistics, said. From upfront discounts and numerous pages of complicated charts to back-end rebates, the negotiated rates are murky. “And if your company doesn’t have good shipping data, you don’t know where your freight falls, making it more difficult to understand whether or not you’re getting a good deal. The data is critical.”
“We see the direction that the market is moving because we help so many clients with optimizing their freight contracts,” Keith Buford with Broussard Logistics added. “We utilize this information with all our clients, so they reap the benefits of our market knowledge, rather than trying to tackle this on their own.”
Furthermore, Broussard pointed out that the carriers have entire teams of people focused on maximizing the revenue for the carrier, not the shipper. These teams also have access to all your shipping data (even when you don’t), so the carriers really have the upper hand.
“The carriers have an objective and you as the shipper have an objective, and those are not the same,” Broussard said.