Spend Matters welcomes another guest post from NPI, a spend management consultancy, focused on eliminating overspending on IT, telecom, and shipping.
As carriers like FedEx and UPS announce 2015 rate increases in the form of new dimensional weight pricing policies, many smaller less-than-truckload and truckload (LTL and TL) carriers are also seeing room for rate hikes. In recent months, several have announced modest price increases for delivery services. The combination of rising labor costs and pressures to improve operating ratios make the case for higher pricing in 2015.
Here are five things shippers can do right now to minimize or mitigate the impact of rising LTL/TL costs in the months ahead:
Stop negotiating one-year agreements. LTL and TL carrier pricing typically comes in the form of a one-year agreement, but that doesn’t mean shippers can’t lock pricing in for a longer term. Customers should consider negotiating agreements with 18-24 month terms to protect against rate hikes.
Minimize spot rate transactions. Many companies use LTL and TL services on a spot-quote, no-contract basis. Rates, surcharges and accessorial fees are typically higher in these scenarios, and should be avoided if possible. If a spot quote is necessary, shippers need to thoroughly analyze the quote and its terms and conditions, validate rates and understand exactly what surcharges will be applied.
Negotiate lower accessorial fees, including fuel surcharges. Don’t assume that accessorial fees are set in stone. Shippers armed with carrier cost-to-serve data can make the case for lower surcharges, including fuel. This requires analyzing customer (or recipient) shipping characteristics to understand which accessorial fees are having the biggest impact on LTL/TL spend, and targeting the top 80 percent.
Investigate service levels and financial stability. While many LTL and TL carriers are enjoying the stability of high demand, there are others who haven’t bounced back as strongly. Aging assets, persistent driver shortages and higher labor costs are testing the service levels of some carriers. It’s important for shippers to investigate the financial stability of their carrier choices, as well as shine a light on whether service level capabilities are in line with shipper expectations and unique industry requirements.
Be ready for dimensional weight pricing changes. UPS and FedEx have made significant changes to dimensional weight pricing that will take effect in 2015, and shippers should be prepared for some LTL carriers to follow suit. Shippers need to be prepared to swiftly analyze the impact of any dimensional weight pricing changes, as well as explore negotiation strategies that will keep the divisor in check.
Taking steps now to mitigate higher LTL/TL costs in the months ahead is not a small undertaking. It requires an in-depth analysis of transportation data and customer order history, and preparing a strong business case with carrier(s). Putting the hard work in up front can result in substantial payoff.
- Jim Haller, Program Director, Transportation Services, NPI