The 2:00 Minute Warning

With freight budgets under attack, and LTL carriers increasingly selective about who they do business with, it’s not surprising that we’ve heard from a bunch of folks who have questions about the best strategies to use in managing freight costs.

That is why we talked about the "3E" strategy in last week’s Two Minute Warning. To briefly recap, we noted that shippers need to be:

1. Educated about what is happening in the transportation marketplace.
2. Equipped with the right tools and technology to manage freight costs.
3. Focused on Execution and doing the right things effectively and efficiently.

We heard from some of our readers who asked us to break this down a bit further. So this week, we are providing education about some significant changes that have occurred in the LTL marketplace. It is important to pay attention to these changes because they will impact on your LTL rates as well which LTL carriers want to do business with your company.

Historically, protecting or gaining market share was very important to LTL carriers as they responded to RFPs. That is why the traditional sourcing model for LTL shippers emphasized the volume of shipments and playing carriers against each other in their negotiations. They were counting on the carriers to offer more aggressive rates in order to retain or gain market share.

Things have changed in a big way! In today’s environment, LTL carriers have a wealth of data and are using Activity-Based Costing models that quantify their cost to do business with each and every shipper. And in a marketplace where capacity has been tight, and is likely to remain so for the foreseeable future, they have a much different negotiating posture. They are pricing their services to achieve their targeted profit margins and are confident enough to walk away from business that does not yield an acceptable financial return.

Since the LTL carriers are focused on yield instead of market share, shippers need to evaluate the changes they need to make in their sourcing strategies to avoid leaving a bunch of money on the table. If you want the best possible results from your LTL RFP, focus on these three things:

1. Know exactly how much space your freight takes up on a trailer. For example, you may “see” one pallet; the carriers know that the size of that pallet can take anywhere from one to four pallet positions because your packaging is inefficient.

2. Understand how much time your carrier needs to service your account. Want to make your carriers wait because of limited doors or reduced capacity at your shipping/receiving facilities? Expect to pay more, because the carriers know how much time they consume servicing your business and will charge you accordingly.

3. Address the "fit factor". Smart shippers know that they can get better rates if they match up their freight with the right carriers. In other words, they are tendering freight to their carriers based on the lanes that “fit” within that carrier’s network. And recognize that a holistic, strategic view that fits the freight to each carrier's network will result in the best possible pricing.

Here at TranzAct, we have some great tools that can help you get educated and address these factors as you prepare to talk to your LTL carriers:

Our Carrier Yield Test worksheet will help you understand how your carriers view your business, and will allow you to adjust accordingly. Additionally, our LTL White Paper is a great resource to learn the basics before beginning negotiations.

And if you need more help, just give us a call at 630.833.0890 or send us an email at solutions@tranzact.com.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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