October 10, 2012
A recent Inbound Logistics magazine article relating the results of their eighth annual 3PL market research report found that 66 percent of Shippers said their #1 concern today is not achieving sustainability, but cutting freight expense!
The results are not surprising, given the stagnant business environment both domestically and internationally today. So many companies continue to search for ways to improve operating cash flow by cutting expenses. And the traditional focal point of expense reduction tends to be freight expense, the proverbial low-hanging fruit!
Typically this is achieved by conducting a quick competitive bid where shippers browbeat, threaten, and intimidate their current carrier base into freight-rate concessions if they wish to retain the account. While this methodology yields savings, it can often have unintended consequences, such as service degradation, service abandonment, creation of new assessorial charges, revision of FSC schedules upward, strained relations for future negotiating sessions, etc.
But business management often doesn’t know how to pursue a Transportation Spend Management strategy that goes beyond the traditional carrier contract renegotiation or carrier competitive bid RFQ-RFP. Often narrowly focused on a single mode, these tried-and-true methods often result in a one-off, quick hit where the shipper pits their leverage and clout against their carrier base.
One way to pursue a more productive result, is for the shipper to seek out and employ an experienced, un-biased 3PL “force multiplier,” someone who came from the shippers’ side of the desk, who has a track record of achieving not only freight expense reduction, but facilitating processes in which the real objective is to have all parties work together to reduce overall expense and produce a better solution that benefits all parties involved—shipper, carrier, and 3PL.
So, if you are one of those shippers whose #1 concern is “cutting freight expense,” think twice about how you wish to accomplish this. While low hanging fruit projects typically result in +/- 10% one-time savings, the 3PL “force multiplier” approach often yields results in the 15%–25% or more range, not to mention a much better overall solution, one in which all parties have a vested interested in making it work!