Understanding and managing your freight rates effectively can yield significant cost savings and operational efficiencies.
Understanding the leverage of consistent lanes
Consistent lanes in transportation are routes where freight is regularly shipped between the same origin and destination. Contrary to the common belief that larger shippers always secure lower rates, data indicates that it is the consistency of lanes that often leads to more competitive pricing. Carriers value these predictable lanes as they can reliably allocate resources and plan their networks around them.
Analyzing Spot Rates
Spot rates are dynamic pricing rates offered by carriers for immediate shipping needs, as opposed to contracted rates which are pre-negotiated for a longer term. In a typical or "normal" market, it's advantageous to convert consistent lane shipments from spot rates to contract rates to avoid the premium of spot pricing.
Volume variability: The common culprit
A primary factor leading to the reliance on spot rates is the variability in shipping volumes. Addressing this issue involves close collaboration with internal teams to improve forecasting and manage volume fluctuations better.
Implementing a weekly or monthly analysis process
Regularly analyzing your spot rates, especially in tight markets, is essential to control budget overspends effectively. Here’s a recommended approach:
- Filter by recent data: Focus on the most recent data, ideally the last four weeks or even the previous week if you're analyzing weekly.
- Set rate type to Spot: Filter your analysis to only include spot loads, using a standard or customized definition of spot loads.
- Compare against contract benchmarks: This comparison will typically show spot rates as higher, particularly in tight markets, highlighting areas for potential cost savings.
- Analyze frequently used Lanes: Leverage comes from consistency. By focusing on frequently used lanes, you can identify where you’re incurring high spot rates unnecessarily.
- Sort by Delta Cost: Prioritize lanes with the highest cost differences to pinpoint where the greatest opportunities for savings exist.
Drilling down into specific lanes
For each lane identified as a priority, further analysis is needed. This involves examining trends over time, comparing spot versus contract rates, and understanding volume variability within those lanes. Such an in-depth look can reveal patterns or issues contributing to the reliance on spot rates, such as promotional activities driving volume spikes or inventory planning challenges.
Collaborating internally and with carriers
The insights gained from this analysis should not be siloed within the logistics function. Sharing findings with inventory planning, commercial teams, and other relevant internal stakeholders can foster a more cohesive approach to managing freight volumes and costs. Additionally, this analysis offers an opportunity to engage with carriers, seeking ways to increase capacity with lower-cost options or negotiate better terms based on your consistent lanes.