Controlling freight costs is a priority for many businesses. However, it can be difficult for shipping coordinators to identify areas of their shipping process that can be changed to reduce costs, especially those at smaller businesses who may not have the time or resources to do so.
It is important that shippers understand the key areas of their supply chain that can be adjusted to maximize cost savings – or partner with a 3PL like Red Kite who does – to successfully lower their freight costs. Here are some of the key strategies that shippers seeking to reduce freight costs need to consider.
Build Strong Carrier Relationships
Having strong ties with a few key carriers is important when negotiating freight rates. Carriers are more willing to reduce surcharges or accessorial fees for shippers they regularly work with, and good carrier relationships give shippers greater leverage when negotiating rates.
Shippers who use different carriers for each load are less likely to build these important relationships, making it more difficult to negotiate freight costs. Therefore, shippers should identify a small group of trusted carriers and build those key relationships.
Partnering with 3PLs like Red Kite – who have strong connections with a network of carriers – may also help shippers reduce their freight costs. Due to these relationships, 3PLs have strong bargaining power with carriers and can negotiate lower freight rates.
Consider Contract Freight
Many shippers – especially smaller ones – elect to use the spot freight market to find coverage for their loads. However, contract freight can offer freight savings for shippers who send regular volumes of freight on a specific lane.
Unlike spot rates, which rapidly change depending on market conditions, contract rates are locked in for a set period of time, typically a year. Contract freight can protect a business’s primary shipment volume from unexpected rate increases and reduce freight costs in the long run.
Increase Shipment Lead Time
Lead times have a major impact on freight capacity, and therefore freight rates. Providing carriers with shorter lead times means capacity will tighten, and shippers will pay more for freight. Providing carriers with advanced notice for a shipment, however, means shippers will likely be booking a load when capacity is not yet full and pay less for freight.
Even if a shipper is unable to increase their lead time due to manufacturing materials that require JIT shipping or short lead times, such as building materials, 3PLs – like Red Kite – can use their carrier network to find affordable coverage in tighter capacity markets.
Optimize LTL Shipping
While LTL shipments can result in lower freight costs for smaller loads, LTL services are complex. Shippers who are inexperienced in LTL shipping or who make a freight classification error can end up paying extra.
Before arranging LTL freight, shippers should ensure they do the following to fully utilize the cost savings LTL can provide and avoid hidden fees:
- Maximize load weight. Heavier shipments typically have lower base rates than lighter shipments.
- Ensure freight is classified correctly. Incorrectly classifying a load means the carrier will need to re-classify the freight. If the load falls under a different freight class, shippers face extra expenses.
- Consider negotiating freight all kinds (FAK) with a carrier. If a load contains freight from multiple classes, classifying as FAK puts the entire load under one class and may result in cost savings.
Experienced LTL logistics experts, such as Red Kite, can also assist shippers with optimizing their LTL load. 3PLs are highly knowledgeable about how LTL rates are calculated and can help shippers maximize cost savings for smaller loads
Shipping during peak days or times means freight services are in high demand, which will tighten capacity and drive rates up. Shipping off-peak – days or times when freight services are in lower demand – means truck capacity, and therefore freight rates, will be lower.
Carriers often provide lower freight rates for off-peak loads to help fill their shipping schedule as well, which can result in even greater cost savings. Shippers should factor peak times into their delivery schedules and consider shipping on weekends or overnight if they are able to do so.
Track Market Conditions
Market conditions have a major impact on freight rates, particularly in the spot market. For example, manufacturing activity was very strong in 2018. Most manufacturers require flatbed trucks to transport raw materials – such as steel and other metals – as well as finished goods. This increase in flatbed demand resulted in higher spot market freight rates.
Monitoring market conditions can help shippers gauge the future direction of rates and enables them to make informed decisions about what will offer the most cost savings. For example, if demand for reefer services is weak, food and beverage shippers may choose to frequently use the spot freight market instead of locking into a contract and take advantage of lower rates.
To help shippers keep track of the market conditions influencing the freight market, Red Kite publishes a monthly market report that discusses the latest shipping indicators and trends. Sign up to receive the report below.
Utilize Carrier Backhauls
When a driver delivers a load, but does not have a backhaul – a load that can be transported from a driver’s destination back to their origin – carriers still need to cover fuel expenses, driver wages and other operational costs. For this reason, carriers will charge lower freight rates for return loads to ensure they avoid having an empty truck.
Shippers can utilize backhauls by partnering with a carrier based near their load’s ship-to point, as this means that the load is likely a return load for that carrier. Shipping on a lane that a carrier regularly services also makes that carrier more likely to find a backhaul. When a carrier does not have a backhaul load, they may charge higher rates to offset the time and resources used to drive to their next destination without a load.
3PLs can also assist with utilizing carrier backhauls. Red Kite, in particular, was founded on the principal of utilizing backhauls to benefit both the shipper and the carrier.
Partner with a Trusted 3PL
3PLs are comprised of logistics experts who coordinate shipping for businesses. With their supply chain expertise and strong carrier relationships, 3PLs can negotiate lower freight rates and identify areas within the supply chain where shippers can streamline costs.
When seeking a 3PL to assist with your freight needs, it is important to consider 3PLs who are trustworthy, knowledgeable and have a wide, reliable carrier network. Red Kite Freight Solutions has decades of combined experience in logistics and a trusted carrier network that spans North America. The Red Kite team uses its expertise and connections to find cost-effective freight solutions for a variety of loads, from raw materials to finished goods.