In this difficult year, many shippers are seeking ways to save money on freight costs. To achieve this goal, manufacturers and distributors are conducting RFP’s in record numbers, closing plants, reducing inventory levels, changing modes and consolidating shipments to move heavier weights on specific days of the week. Since many companies move shipments of 200 pounds or less, they face the dilemma of whether to move their freight as LTL or parcel shipments. Shippers that do not perform a complete analysis of their freight rates and shipping options run the risk of spending considerably more on freight than is necessary.

Here are some issues to consider in order to make an informed choice.

Service Levels and Shipment Weights

Before thinking about rate levels, one issue to determine is whether your freight needs to be shipped as parcel shipments on a daily basis or consolidated and moved at heavier weight levels on designated days. Are you able to combine a group of parcel shipments and ship them to distribution centres where they can be deconsolidated and delivered as individual parcel shipments?

As part of this assessment, it is important to revisit delivery requirements. Do you have to supply your clients with 8:00 AM or 10:00 AM deliveries or would a next day or second day LTL service be satisfactory?

Examine the Full Set of Rates

Freight rate comparisons need to include line haul rates, fuel surcharges and accessorial charges. There are a myriad of accessorial charges that come into play when shipping parcels. Some carriers assess single shipment charges. As a result, moving multiple LTL shipments at one time can save you money. The various rate elements need to be compared in a methodical way. Failing to include the full range of additional costs in your evaluation can lead to an incorrect assessment.

Benchmark your Rates

Various benchmarking services are available to assess if your company is paying market or above market rates. In view of competitive world we live in, it is important to perform this evaluation.

RFP’s

The world of freight has changed significantly in 2009. Lower volumes have made carriers more rate competitive than in prior years. If your company has not conducted an RFP on their LTL/small parcel shipments in the last 12 months, it may be missing out on an opportunity to reduce costs.

Rate Analysis

Just looking at the rates alone can sometimes be deceiving. If possible, construct a model that allows you to take three months (or more) of freight and rate these shipments under the various scenarios that you may be considering. This may provide you with a truer picture of the total relative costs of shipping via each mode.

Carrier Selection

Some carriers provide both LTL and parcel services in the United States (e.g. UPS, FedEx) and/or Canada (e.g. ATS, Purolator) while others do not. Can you leverage your total volumes with a smaller set of carriers? Is your company in a position to use one or two carriers to handle all of your volume? Would this result in your company being unduly dependent or vulnerable?

Does your short list of carriers employ the latest technologies to process and move their freight? Manual processes result in additional costs. These costs will be passed on to your company and may degrade the level of service your customers are receiving. It is important to perform a certain level of due diligence on your carriers to ensure your company is not paying a premium for outmoded processes.

As part of your carrier evaluation, find out if they need “top freight” on the major shipping lanes where your freight moves. If your company’s cartons can be top loaded in those hard to fill spaces and provide additional revenues for the carrier, you may be able to negotiate particularly favourable pricing.

Additional Cost Reductions from Carrier Incentive Programs

Some carriers, particularly the parcel carriers, provide incentives to encourage shippers to move all of their volumes through one network. This raises some important issues. Are you able to control the application of your routing guides in each facility? Are your colleagues in your various plants likely to use your recommended carrier (s) or select their carrier of choice? Is your cost savings projection based on a certain level of carrier compliance that you are not able to control?

Payment Terms

Some small parcel carriers expect payment in seven days. If you are thinking of converting to an LTL provider, you should be able to negotiate a further discount for quick payment.

Keep these considerations in mind as you make your assessment of how to allocate your freight between LTL and parcel.