After a recession-caused freight price war in the past few years, less-than-truckload (LTL) freight demand and prices are rising again as the economy recovers. With a shortage of trucks, drivers and even the terminals needed to consolidate LTL shipments due to cuts during the recession, industry experts are predicting double-digit price hikes until capacity meets demand. For manufacturers dependent on inbound, outbound, or just-in-time shipment of parts or finished goods, rising LTL rates can be particularly worrisome.
Carriers that absorbed price cuts and deferred maintenance to contain costs are now raising prices to regain margins lost during the recession. Fuel costs that have risen about 20-30% recently, due to tighter supply, Middle East instability and other factors, are also driving up LTL freight costs.
“When industry freight costs rise, it’s more important than ever to find the best price,” says Kenny Mealer, shipping manager of CrossRidge Precision Inc., an Oak Ridge, Tenn.-based company offering precision machining and assembly of aerospace, automotive, nuclear, heavy truck and industrial products and components.
While most manufacturers can expect rising shipping rates as the economy improves and carriers regain lost ground, the most proactive are seeking to partner with a third party logistics provider (3PL). This can save manufacturers an extra 18% to 25% off already heavily discounted LTL freight costs, if they routinely make multiple shipments to multiple locations and work with numerous freight carriers. For every $100,000 in freight costs, that can amount to as much as an extra $18,000 to $25,000 in savings.
How can a 3PL lower freight costs beyond a company’s existing discounts? By negotiating additional discounts based on the 3PL’s relationships, reputation and volume business with established carriers.
“A good 3PL will analyze current rates and freight requirements, then bid out the work to qualified freight companies hungry for the work,” explains Larry May, owner of Freight Management Systems (FMS), a Knoxville, Tenn.-based 3PL routing approximately 20,000 freight moves each year. “An established 3PL, brokering a large volume of business with major carriers, can negotiate much better discounts than the manufacturer.”
FMS, for instance, has ongoing relationships with 20 to 25 of the leading U.S. LTL carriers and relationships with load-matching firms Transcorp and Internet Truckstop. This allows the company to consolidate a client’s freight with its own volume discount, put out a “mini-bid” to a few chosen carriers known to be a good fit, or put out a “full bid” for which up to 20 select carriers compete. Proprietary “best carrier pricing” software, which rates shipments from multiple carriers, helps the company to determine the best carrier at the best cost.
“I thought I’d done well with the 77 to 80% freight discounts I’d negotiated from our carriers,” says Kenneth Precise, purchasing agent for the Kennedy Companies, a manufacturer of PVC sheeting and components. Working with FMS, however, helped Kennedy reduce its freight cost by an additional 25%.
Because mistakes in LTL freight billing are common, especially in product classification, full service 3PLs should conduct freight bill audits. For instance, they should audit the National Motor Freight Classification (NMFC) code on the freight’s bill of lading to ensure it hasn’t been mis-classified at a higher rate.
“Many factors affect how a freight rate is calculated: product classification, density, weight, value, distance moved, and damageability, for example,” says May. “But the higher the NMFC classification, the higher the shipping rate, which is why getting it right is key.”
A good 3PL can help contain the hidden costs of freight such as chasing down quotes, invoices and documentation, which can require a substantial in-house staff if done internally. It can also help to prevent potential production line slows or shut downs when needed parts are unexpectedly held up.
“Working with a 3PL has consistently given us the best LTL freight price with the reliability we need for just-in-time inventory shipments,” says Mealer. “We don’t have enough time to routinely quote many carriers, sort the bids, and follow up with the shipments. A 3PL can help do that while minimizing potential freight errors.”
Del Williams is a technical writer based in Torrance, Calif.