The transport of goods for U.S. businesses totaled $1.2 trillion in 2021, including $32.4 billion for ocean freight, $52.7 billion for air, $88.3 billion by rail, and $830.5 billion by road.
How big a slice is freight taking from your company’s budget? On average, transportation comprises 60% of the supply chain dollar. Even if you’re nowhere near a number that ends in “illion,” it’ll be worth your time to reduce supply chain costs with a mix of the freight optimization tips below.
Strategies for Freight Cost Reduction
Using a blend of approaches, you can reduce your freight budget over time—especially if you’re just getting started applying a logistics platform and data analytics.
#1: Opt for Consolidated Shipping
With careful load planning, you can save on freight costs by combining multiple smaller shipments into fewer but larger shipments.
Consider how shipment consolidation will affect other steps and costs within your supply chain such as storage, resourcing, and fulfillment. Where it makes sense, try to maximize load capacity.
Minimizing trips has the additional benefit of reducing your environmental impact with fewer total miles traveled, fewer trucks on the road or ships at sea, and lower emissions to get your goods from point A to point B.
#2: Negotiate Better Carrier Rates
Carrier negotiation is a must when freight transport is a regular part of your business costs. Consider what factors are critical for you and where you have flexibility:
- Frequency
- Time of day, day of the week
- Transit times
- Ship methods
Research carriers to determine how your needs/wants prioritization matches up to their strengths and capabilities, and then identify contract terms with the most potential to adjust. Ask for incentives or discounts to specific fees or to the bottom line after building a respectful relationship with your contact.
Contract review, requests for proposals, and negotiation should be a regular part of your cycle on a one- to two-year basis, or faster if needs or opportunities change.
For insights on upcoming trends, check out our freight rate forecast to help guide your negotiation strategy.
#3: Adopt Route Optimization Software
Route optimization software takes your schedule, resources, customer needs, and shipment details into account and provides the most efficient and cost-saving routes for the legs of transport you control or select.
It can allow you to reduce time and save money on:
- Fuel
- Labor
- Vehicle maintenance
- Tolls, surcharges, and high-wear roads
#4: Optimize Load Management
Load management is a subset of freight optimization that focuses on the goods themselves and how they’re arranged, transported, or moved to maximize efficiency. Consider:
- Load optimization – Achieve the highest load capacity in a vehicle or shipping unit without compromising safety.
- Backhauling – Locate cargo to transport during return trips so all trips make money.
- Cross-docking – Reduce warehouse costs by direct transfer of goods from incoming to outgoing trucks without interim storage.
#5: Enhance Freight Billing Accuracy
Once you’ve negotiated your freight contract, you need to ensure that every bill is in accordance with it. This is most effectively done with a logistics platform that can audit shipping invoices and automatically pursue and track refunds you’re owed.
#6: Implement Dynamic Pricing Models
Dynamic pricing is a method that some carriers use to offer sliding rates based on resources and external factors. Rates could change in relation to:
- Fuel prices
- Carrier capacity
- Market demand
- Weather
If you work with carriers who employ dynamic pricing, you could save by being notified of lower-rate availability and understanding off-season timing.
#7: Utilize Data Analytics for Better Decision-Making
Have you ever heard the phrase, “Those who fail to learn from history are doomed to repeat it?” Data analytics simply means reviewing available information—in this case, your freight order and billing history—to find patterns and relationships that lead to useful action.
Business decisions in the past were often made based on learning others’ best practices, repeating established processes used during profitable periods, and developing long-term relationships and partnerships.
While those remain useful, what shipping analytics brings to the table is the ability to drill down to exact and real-time detail by sorting, comparing, and modeling data within your platforms, software, databases, and spreadsheets.
Shipping data analysis can reveal patterns and cost-savings opportunities for:
- Route optimization
- Carrier selection and performance improvement
- Improved negotiation outcomes
- Shipping process streamlining
Maximize Cost Savings with Strategic Freight Management
Reducing your freight spend can directly increase your bottom line, and it all comes down to strategic freight management.
When you partner with Lojistic, you’ll access the shipping business intelligence to easily take action based on your freight needs and history. Whether you’re a start-up or a major manufacturer, our platform can audit your shipping invoices, pursue refunds owed to you, help you procure lower rates with carriers, provide actionable insights and automation, and track your results.
Contact us for a one-on-one consultation to explore how we can help you optimize your freight operations. You can call us today or schedule a convenient time for us to contact you.
Sources:
Statistica. Breakdown of U.S. transportation costs in 2021, by mode of transportation. https://www.statista.com/statistics/645322/us-logistics-market-transportation-costs-breakdown/
Navata. Strategies For Freight Cost Optimization. https://www.navata.com/cms/freight-cost-optimization/
Author
Rich Harkey
Rich Harkey
Senior Strategy Manager
As the Senior Strategy Manager at Lojistic, Rich leverages over three decades of expertise to help businesses improve their shipping strategies and reduce costs. With a deep understanding of the requirements of shippers and the operational intricacies of carriers, he excels in everything from optimizing business rules and managing carrier invoices to negotiating carrier contracts.
Rich's comprehensive knowledge of the logistics industry, combined with his strategic insights and passion for data analysis, has enabled thousands of companies to gain visibility into their shipping expenses, driving impactful results.