As we head into some tough times, this makes it that much more important for shippers to skilfully manage their freight costs. With freight transportation expenses running at between 1 and 10% of revenues in most manufacturing and distribution firms, a few percentage points in savings can make a big difference to a company’s bottom line. This makes the process of carrier selection and rate negotiations an important element of any company’s cost savings program.

The process can take many forms. There are shippers who wait for carriers to come in with their annual increases as a trigger to launch a rate negotiation process. Others may take a more proactive approach by conducting a freight bid on some or all of their freight. The results of the freight bid can form the basis for updating their routing guide.

Between the two extremes of “watchful waiting” for your carriers to make the first move and aggressively going to market to secure rates from new and existing carriers, there are a number of options open to shippers. You can bid certain problem lanes or specific blocks of freight (e.g. cross-border LTL freight, Western Canada shipments, small parcel shipments etc.) or you can bid your entire freight program.

Develop a Carrier Selection Strategy

The decision on how and when to initiate the carrier selection/rate negotiation process should be based on answers to the following questions:

• What changes have taken place in my business over the past year (e.g. new products, new markets, new vendors, new cycle times, new warehouse locations etc.)?
• How does my company’s supply chain differ from the way it was a year ago?
• What are the freight transportation implications of these changes?
• What options do I have to switch modes (e.g. truck to intermodal, LTL to truckload) to achieve cost savings while meeting production and/or customer service requirements?
• Can I leverage my inbound and outbound freight movements?
• Are there locations where my vendors and customers both have offices such that I can create round trip opportunities?
• Is there anything I can do to increase the utilization of my company’s private fleet and/or should this freight be leveraged with my other freight and tendered to common carriers?
• When was the last time I bid each segment of my freight transportation business?
• What is the current economic climate and what is the forecast for the next 24 months?
• What are the biggest freight transportation challenges and opportunities that I am facing at the present time?
• Is my company able to effectively manage freight transportation or would there be savings and efficiencies by outsourcing this non-core function to a third party logistics or freight management company?

By answering each of these questions, this should allow you to develop a well thought out group of objectives to launch your carrier selection process.

Analyze your Freight Spend Data and Carrier Scorecard

You also need to look at your freight spend data and your carrier scorecard or dashboard. By analyzing the past twelve months of shipping data, you may be able to discern trends and patterns that should be considered in your procurement exercise. These are some of the items to be examined.

• What is my annual freight spend and how many core carriers do I have?
• Are there opportunities to reduce my freight costs by rationalizing my core carrier base?
• Are there certain carriers that are not meeting our expectations in terms of on time service, claims, billing accuracy etc?
• Have I got all of my carriers on the same fuel surcharge formula?
• How much money am I spending on accessorial charges and why and where are these costs being incurred?

Create a Starting Point for Rate Negotiations by Benchmarking your Freight Costs

The next question is have you benchmarked your freight costs? How do you know that you are paying at or below market rates for all of your freight movements? If you don’t have this data, you may need to conduct an informal rate gathering exercise or conduct a formal freight benchmarking study.

With a thorough analysis of your business needs and objectives, as they pertain to freight transportation, an analysis of your freight spend data and carrier performance metrics and a set of freight rate benchmarking data, you are able to initiate a focused carrier selection process.