Material handling and logistics managers are faced with cutting costs while preserving profit in this recovering economy. Many methods can have negative effects on the workforce, including downsizing or budget cuts, and therefore can decrease efficiency.
One area that can increase productivity and savings is volume shipping. While it can initially seem daunting to conduct a lengthy parcel audit, the following savings concepts are not too hard to learn and once understood, can prepare the way for more advanced tactics for reducing shipping costs.
1. Negotiate with Carriers
One of your first assignments is to standardize the language of shipping in your organization. This cost-saving method focuses on using commonly understood words and phrases to lessen confusion. It can also help during the carrier negotiation process, which can yield some of the biggest savings because they will be written into the shipping contract between your business and the carrier.
Although there are many different terms and abbreviations to note, there are two important concepts commonly used during a negotiation: “Value-added service” and “relationship.” These are normally positive words that are used by carrier representatives to create a deal that may sound great during a conversation but does not actually include any savings for your company. Because carrier reps are paid by a commission on how much profitability they can maneuver within each negotiation, they use positive words to elicit the best deal with little in writing.
The easiest way to counter this is to first review such terminology and become familiar with it; then, your business can verbally acknowledge to your carrier rep that better rates are a much more key issue in creating a better relationship between your business and the carrier. The result should be discounts for your company.
2. Compare Rates
In the small parcel shipping industry, there are mainly only two large-scale players— UPS and FedEx. This creates a skewed system with a back-and-forth competition.
The positive side to the lack of competitors is that it sharpens your focus. To compare the carriers, find the current rates on their respective websites or use a free shipping comparison calculator, usually found easily online. When you find the rates using the specifications your business has—from package size to distance to destination—note that you cannot simply put the rates and incentives side by side because it will not give you an accurate portrayal of the savings. Instead, compare net costs after applying all other discounts and incentives.
The most important aspect to note here is that it’s important to do a comparison check whether you are a new or a long-time customer. Loyalty is important, but to carrier representatives it could also very well mean a simple contract fill that doesn’t require any incentives since they believe they have your business without them. Make sure to make them work for your continued business.
3. Find Mistakes in Accessorial Fees
Accessorial fees are charges that come up in conjunction with regular transportation costs and are calculated by using small but important figures such as pickup and delivery data from the carriers. Your packages have numerous accessorial costs associated with them and actually add up to make up a large portion of your shipping fees.
They are also the main source of carrier complaints and offer a simple opportunity to reduce shipping costs. The reason for these savings is because many of these fees actually contain carrier mistakes and when corrected, can become refunds that go right back to you. The mistakes happen because even though new technology has been integrated into the carrier process, human interaction still constitutes much of the process, leading to constant mistakes.
The best way to discover these carrier mistakes is to make sure you research and discover potential charges that can appear on your shipping invoice. Create a process in which someone in your company cross-checks and validates each and every accessorial charge. After discovering these mistakes, your business can receive refunds when they are presented to the carriers themselves.
Although there is much more to look into when trying to cut your shipping costs, these three major areas are important in helping your company see immediate results. They encompass several complementary methods to help save money for your company in ways that don’t affect your company workflow. You can make sure your company saves money both immediately, through carrier invoices, and in the long-term, within carrier negotiations.
Whether it’s through the assistance of your own staff or through the help of an experienced, third-party team, it is important to get a start on reducing your costs as soon as possible to stay ahead of the curve and get a handle on the future growth of your company.
Luke Kupersmith is CEO and co-founder of Source Consulting (www.sourceconsulting.com), a privately owned logistics consulting firm. Previously he worked as a financial advisor for individuals and small businesses. Connect with him on Facebook at www.facebook.com/ConsultSource or on Twitter @Consult_Source.
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