This Opinion piece appears in the Dec. 19 & 26 print edition of Transport Topics. Click here to subscribe today.
By Garry Oswald
Vice President National Traffic Service
Shipping pricing is complex, which means there are numerous factors to take into consideration to ensure that you’re getting optimal pricing from your carriers. When negotiating, if you’re focused only on the overall base discount, which is something many companies do, you’re missing out on opportunities to lower your parcel, less-than-truckload or truckload shipping costs. Freight invoice auditing can help your team identify these savings opportunities and achieve them in carrier negotiations.
Businesses often audit their freight invoices for three main reasons: to save on shipping costs, to cut down on administrative costs and to use the data captured to make more informed decisions.
The last benefit of freight invoice auditing the business intelligence is how freight invoice auditing can help shippers get better rates in carrier negotiations. Knowledge truly is power in this situation.
From a single invoice, auditing gathers more than 150 data points, such as shipping lanes, freight class, number of shipments, average shipment weight and service levels. Combine all your invoices together and you have a treasure trove of data about your company’s shipping practices.
Carriers like having a precise record of your shipping history because it allows them to make a more accurate forecast of their company’s operations for the upcoming year. Just as you need to make hiring and resource decisions for the next 12 months, so do carriers. And just like you, they have goals too.
One goal carriers have is trying to fill certain shipping lanes. Let’s say you ship the majority of your products from New York to California. If the carrier is trying to reach capacity in that lane, they’re going to be more willing to give you a lower rate because you can round out the existing lane for them. Carriers are similar to airlines in this respect. If a flight has empty seats, the airline offers tickets at a lower price to fill the plane, which is what carriers do.
Providing your shipping history alone can give you a step up in negotiations with any carrier, particularly if it’s a carrier you’ve never worked with. If you’re talking to a provider you’ve already used, they may only have a portion of this data if you’re only using them for certain lanes.
Accessorial fees, including fuel, can make up 30% to 40% of all freight expenses. If you can identify the top fees that cost you the most, then you can focus on those during negotiations.
With hundreds of different accessorial fees for services beyond standard shipping, the more common ones include:
• Fuel surcharges: When oil prices go down or up, so do your fuel surcharges. Sometimes shippers can negotiate to put in a fuel cap.
• Residential delivery charges: Residences can be more difficult to deliver to than business addresses.
• Notification charges: They let the consignee know when the shipment will be delivered.
• Delivery area surcharges: These are for rural or congested areas.
• Inside delivery charges: These apply if the shipment must be taken into a building.
• Liftgate fees: These apply if the consignee doesn’t have a loading dock and a liftgate is required.
• Address correction charge: These are extremely common with parcel shipments. Even abbreviations in an address can lead to an additional $5 or $10 charge.
• COD fees: They are charged for the carrier to collect the payment for the goods (not the freight charge) and transfer the money back to the shipper.
• Oversize fees: These charges are for shipments that exceed specified dimensions.
With so many different accessorial charges, unless you have a comprehensive system that captures all of the data, you’re at a disadvantage in the negotiation process.
Here’s an example where hard figures assist shippers: If a company has its freight expenditure data available and knows it’s spending $15,000 on liftgate charges and $125,000 on inside delivery charges, the emphasis should be on the inside delivery charges to realize maximum cost reduction. Without this cost breakdown, you could be focused on the wrong expenses.
Another example includes your average shipment weight and how many minimum weight shipments you make. If you know your average weight is 250 pounds, then you can focus on negotiating the best possible floor minimum. If your average LTL shipment weight is 2,000 pounds, then the floor minimum is secondary to the discount percentage.
Knowing your weight breakdown by class also can help you negotiate intelligent Freight-All-Kinds, or FAK, ratings if you ship different commodities at varying LTL classes.
Acting on information from your memory can lead to higher costs and missed opportunities to save. Specific data will help you get the best deal for your company. Going into a negotiation, the more details you have available, the better.
Oswald is vice president, responsible for sales and marketing, at National Traffic Service, which provides freight auditing, payment and information processing services.