How to save real money in truckload freight (Part I)

How can you save real money in truckload transportation?   In this post, let’s look at the areas that your transportation team manages directly.

Transportation procurement

I’ve seen a number of supply-chain consulting projects conclude (wrongly) that concentrating purchasing power for transportation into fewer hands would drive significant savings, of the order of 10%.  Are there economies of scale in the truckload market? Yes, but primarily at a lane (origin-destination) level: if you are buying freight for Portland to Los Angeles you do NOT get a better rate because you also want to move freight from Cleveland to New York.

You can save some money in administering freight by concentrating it into one team, you may be able to drive more rapid change in management processes or new systems but economies of scale in purchasing – I don’t think so.

On the other hand, In a recent post [How much money can you save from a Transportation Procurement Rate-Bid?] I looked at a study from C.H.Robinson and Iowa-State researchers that concluded that regular freight bids can reduce your freight bid, to the tune of about 3% over a company that does not conduct regular freight bids.  That number looks right on the money to me, absolutely worth doing, especially if your freight is a large proportion of supply chain cost but it's not really BIG.

I also posted on the challenge of getting good benchmarks for truckload freight [...the challenge of transportation rates] and highlighted the CHAINalytics consortium that provides both excellent benchmarks AND quantifies various strategies for driving rates lower.  For the totality of your freight bill, there may be another 1-2 % points to be had there too.

Dedicated routes / dedicated equipment

If you have enough volume it may be possible to set up dedicated equipment and routes and if you can keep these assets  busy it will cost substantially less than if you contract separately for 1 way loads.  I have seen very few opportunities to do this cost effectively: it saves money in the few lanes where it makes sense but it’s probably not going to move the needle in terms of overall costs.

“Carrier friendly” freight / locations

During the last freight capacity crunch, I heard a lot about “carrier friendly freight”.  Think in terms of
  •  Loads that are quick to load/unload. 
  • Shipping Locations that are quick to get through with no waiting
  • Quick payment cycles.

This probably helps but I have not yet met anyone who can put a quantifiable  savings number to any of these “carrier friendly” initiatives.  I suspect that in total they may have a small impact, I’m unsure whether it offsets the cost of creating  it.

TMS optimization

Transportation management systems now include a range of algorithms to help with optimization.  Pulling together smaller orders into single shipments that deliver at multiple stops (“stop trucks”) is a great example of where such systems can drive value.   Or, perhaps it can automatically switch modes for you from truck to inter-modal or rail when you have sufficient lead-time. 

There is real money to be had here, but it does take a lot of setup.  All the constraints around carriers and shipping/receiving locations need to be embedded in the system and maintained on an ongoing basis or it will generate loads that can’t be shipped, moved or received.

Also, understand that the optimizer reviews the options available to you to find the “best” or at least a “good” solution automatically.    If you have given the system relatively few options to consider (by locking down when and how loads must ship), it will have relatively little opportunity to find savings.

My take

A superb transportation purchasing team may be able to save 5% on cost in comparison to a relatively weak team.  To save 10% requires a comparison to almost complete incompetence or a congruence of market and macro-economic forces that will unravel within 12 months.  (You got “lucky”, but it won’t last)

What do you think?   Have you seen opportunities I've missed?

Check out Part II for additional opportunities that may lie outside your Transportation Team's control

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