7 Ways to Control Transportation Spend
For chemical logistics practitioners, 2020 is proving to be an especially interesting year for managing transportation spend, performance, and market capacity. The global challenges introduced by the spread of COVID-19, including shutdowns, workplace adjustments, and political and social tensions, demand that logistics experts are more flexible and knowledgeable than ever before. With the right global chemical logistics strategies, the right 4PL partner can find effective solutions that keep your shipping lanes fully functional without breaking the bank.
In this blog, we’re exploring 7 ways chemical logistics practitioners can keep their transportation spend under control.
1. Benchmark Your Transportation Rates
To understand how your transportation rates compare to those of your peers in your industry, commission a benchmarking consultant to perform a rate benchmark study. These studies are especially advisable if you’re about to renew carrier contracts or launch a transportation procurement event. The results of the benchmark will show where your rates are better than the market average, as well as where they’re not. CLX Logistics has one of the most sophisticated benchmarking programs in the chemical industry. Benchmarking analysts work closely with clients to understand the lanes that are (and aren’t) market competitive.
2. Monitor Tender Acceptance on Key Lanes
Mid-sized chemical shippers initiate hundreds of load tender events every day to their carrier community. Most shippers use an automated tender process that sequentially tenders loads to a predetermined list of carriers ranked most- to least preferred. The most preferred carrier is usually the lowest cost provider, but there are situations where that isn’t the case. Best practice is to monitor tender acceptance at least weekly if not daily, especially on high volume or expensive shipping lanes. An increase in the number of rejected tenders by the most preferred carrier can be an early warning that transportation spend (and possibly delivery performance) is about to be impacted.
3. Know Your Carrier Requirements & Specifications on Critical Lanes
Many shippers struggle to collect and communicate accurate equipment and delivery point specifications to their carriers, resulting in chronic unplanned accessorial charges. Customer complaints often stem from situations where deliveries are made by a carrier that’s unfamiliar with the consignee’s requirements, and those requirements aren’t indicated on any available paperwork. Standard processes to document accessorial and delivery point requirements are crucial. It’s best practice to have those specifications built directly into the TMS to ensure all relevant information is properly communicated to carriers.
4. Measure Transportation Purchase Price Variance
Transportation purchase price variance is simply a process to measure actual transportation costs against standard (expected) costs. At both the lane and mode levels, these variances can be powerful indicators of where you’re deviating from your planned transportation spend.
5. Recognize Lanes with Paper Rates
An experienced logistics practitioner needs to understand the concept of paper rates, which you’ll run into all the time. The term “paper rates” refers to contract rates that are stated on paper, but are no longer achievable for whatever reason. Simply put, paper rates communicate that a carrier can get better-paying freight elsewhere. Common symptoms of paper rates include billing discrepancies and carriers reporting that they can’t cover a load at the contracted rate. Oftentimes transportation planning lead time is a significant factor in minimizing the prevalence of paper rates.
6. Have the Right Mix of Broker & Asset Carriers
Typically brokers are less loyal to shippers than asset-based carriers. However, brokers tend to be more flexible and play a vital role in moving last-minute shipments or filling capacity gaps. The optimal mix of brokers and asset-based carriers is often unique to the shipper and their customer requirements. Finding the best ratio requires careful evaluation by experienced transportation analysts. If you don’t have this skill set in your organization, it’s better to leverage the experience of experts rather than risk introducing more instability in carrier capacity or increased spend by trying to do it yourself.
7. Maintain Healthy Carrier Relationships
Shipper relationships with carriers tend to be either heavily transaction-based or more partner-based. Transaction-based transportation can be beneficial as long as appropriate volumes can be maintained. If volumes decrease unexpectedly, or if a higher-volume opportunity comes along, the carrier may shift capacity away from your lanes. One great way to help avoid losing capacity is to strengthen your relationships with key carriers and possibly offer a volume commitment.
As 2020 unfolds, and we look ahead at 2021, the right strategies are critical to controlling transportation spend. Whether you’re dealing with a global pandemic or upcoming capacity right-sizing, you need a clear picture of the chemical logistics landscape to make smart choices.
Looking at your current transportation spend, are there opportunities for improvement? CLX Logistics, LLC, is the world leader in chemical supply chain solutions and a seasoned provider of global transportation management, technology, and supply chain consulting services. Contact us today and speak with our chemical logistics specialists to learn how we can help you optimize global supply chains while keeping costs under control.Back to Resources