Win the Best Freight Rates

Mar 01, 2005 10:30 PM  By

That carriers’ shipping rates will go up every year is almost as inevitable as the proverbial death and taxes. This year, though, companies aren’t just throwing up their hands and accepting the usual. The shipping experts we interviewed, whether transport analysts or logistics consultants or warehouse managers, are unanimous in their belief that businesses are becoming far savvier in their freight negotiations. No longer is it enough to get the best discount possible — a good rate is one that includes a complex combination of routes, delivery options, and value-added services.

“In the last few years shipping has gotten interesting,” says Rob Waite, operations manager at Tuttle Publishing in North Clarendon, VT. “There are lots of different small package carriers now, whereas before we had only UPS. FedEx and DHL are also coming into the realm. It’s not just about looking at rates any more — it’s quite a comprehensive process to evaluate the different carriers and see who’s going to give you the better deal.”

Of course, higher fuel costs certainly have something to do with it. Shippers are monitoring their transport spending more closely and trying to gain efficiencies, says John Stitz, principal of enVista Corp., a logistics cost management consulting firm headquartered in Los Angeles. “We have seen an increase in the number of companies seeking advice on how to optimize their freight spending and increased interest from shippers looking for a third party to assess their shipping operations for best-practices recommendations.”

PERSONALITY PROFILE

To secure the most favorable rates, Stitz says, businesses should analyze their transport spending annually and develop a shipping profile. He also recommends that shippers gain a strong understanding of the value their business has to the respective carriers: “If the shipper understands how the carrier prices their ‘book of business,’ they can make educated decisions based on their volume and package characteristics. For instance, there are software tools on the market that enable warehousing of transportation data in a central location so the shipper can run reports that provide greater visibility of actual freight spend by carrier, service level, weight break, zone, etc. Having visibility of this information can be valuable knowledge in a contract negotiation.”

DEEP BACKGROUND

For Ron Bowman, facilities expert at Crystal Springs Books in Peterborough, NH, background work is everything. He suggests taking a close look at national standards for identifying the type of product that you ship. The better you can match that classification (for instance, Class 60 describes the rate for a printed softcover book), the more accurate your billing rate, and the stronger your basis for negotiation.

Crystal Springs uses FedEx, UPS, or the U.S. Postal Service for small parcels, but 500 lbs. is the cutoff point where Bowman starts looking at common carriers or freight companies. But there’s a catch, he says: “Their biggest gimmick is that they want you to guarantee all of their freight and then they give you a particular discount. Discounts run up to 69%. So if their rate is $1,000, you get almost $300 off, but it’s very difficult to guarantee quantity. It’s not always the most economical rate either. Some local carriers charge just a flat rate no matter what the weight.”

Bowman uses a common carrier with a consistent rate plan and a 65% discount. Most of the time he uses shipping software to figure out rates and delivery times — a process that, he says, often nets him remarkable deals. For instance, by using a small trailer with a flat rate, he can send product from New Hampshire to Chicago without the merchandise being transferred or unloaded, and likely to get to its destination in mint condition.

“Another thing I look for is delivery of product on time and undamaged,” he says. “I also look at what they offer for delivery days. That’s important to me. Most of our deliveries require delivery within a specific time period. We have a three-day window for conferences. For example, with ABF, a company that I use, I can get a date-specific delivery for a relatively small fee. I can also get inside delivery, where they’ll take it off the truck and deliver it to a particular booth at an exhibition or something like that. And they also offer inside pickup. They offer services that it make it certain our product will get where it needs to be at the time it needs to be there.”

The new national security regulations haven’t made much of a difference to domestic shipments, but cross-border transactions are highly complex, Bowman says. The best thing to do, he advises, is not cut corners but deal directly and completely with a broker. “We have tried to save money by doing some of it ourselves, but it didn’t work well.”

Keeping costs down is a priority for Tuttle Publishing’s Waite. “Our annual carrier charges are a significant part of our operating expenses, so it’s very important to keep those costs down,” he says. “We ship with whatever carrier our customers want, but we strongly suggest a carrier with whom we currently have a relationship and we try to promote that carrier to them.”

Tuttle, which sends out about 3,000 packages a week as small parcel and LTL shipments, signs an annual contract and negotiates the rates upon renewal. Most of the proposals Waite encounters are volume-based with a minimum. “We don’t care for those too much, so we try to negotiate those out of the agreement.”

Although Tuttle has an automated manifesting system, the company’s carrier selection is a manual process, says Waite — and he prefers it that way, given the overwhelming variety of shipping options and incentives available.

‘C’ IS FOR CONSOLIDATION

Since competition is everything in the shipping business, research all your options thoroughly, advises Jeff Kline, founder and principal of Kline Management Consulting in Collierville, TN. “Have you talked to the carriers recently? Have you put your business out to bid? Have you negotiated with at least the top three carriers — DHL, UPS, and FedEx? That’s the best thing you can do in terms of trying to offset the increases.”

In addition, remember the “C” word, Kline emphasizes. As rates go up, consolidators become an attractive alternative for residential shipments. Carriers to consider include APX, UPS Basic, SmartPost, and DHL’s At Home service, for which the USPS does the last mile of delivery.

Kline points out that the base rates for the three major carriers are the same and that what you’re really negotiating is a discount off those rates, based on your shipping volume and parcel characteristics. The rate you end up paying depends on how well you identify what the carriers would find most attractive about your business and how convincingly you present that information to them. “For example, I’m working with a business that isn’t very seasonal,” says Kline. “It’s a real advantage for a carrier to get business that’s consistent throughout the year. The type of characteristic that matters is where you’re located, and if you’re currently, say, a UPS customer, how much does FedEx really want that business? You need to find out.”

Don’t give up when a carrier says that it does not discount rates. The carriers do offer discounts, Kline says, and it never hurts to ask. “If you don’t ask, you don’t get.”

O+F editorial director Rama Ramaswami and managing editor Barbara Arnn wrote this article.

Shipping Rate Increases for 2005

  • Delivery area surcharges up 25 cents
  • Residential surcharges up 10-25 cents, depending on the carrier
  • Fuel surcharges reinstated for ground shipments
  • Ground shipments up 2.9%
  • Air shipments up 2.5% for FedEx, 2.9% for UPS and 3.7% for DHL
  • Ground hundredweight up 5.9%, plus new ground fuel surcharge
  • New, higher minimums on ground shipments and declared value
  • Changes to the dimensional weight rule, making more packages subject to DIM

Negotiate a Niche

It pays to consider all your shipping options, and those options may well include using a regional carrier. Regional carriers serve every state in the contiguous 48 states and beyond, to Canada, Mexico, and Alaska. “People that tend to use regional companies are often those that are regional businesses themselves,” says Doug Caldwell, vice president at AFMS, a Portland, OR-based logistics management consulting firm. “Regional carriers can offer customized solutions that generally compete effectively with large-carrier ground service.” For example, he cites a California carrier that hauls Tower Records shipments overnight from Los Angeles to Phoenix at a flat rate. And sometimes, regional carriers are willing to carry loads that national carriers won’t touch — single items such as a 15-ft.-long mowing blade, for instance. Sometimes regional carriers can offer localized services that simply don’t fit the larger and more complex schedules of national carriers, such as daily parts delivery from a warehouse to auto stores before they open at 8 a.m., or, Caldwell says, “they may be willing to deliver diabetic supplies in paper bags on the front porch.”
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