Other Voices: Maximizing LTL freight discounts with a 3PL
Freight Management Systems June 22, 2011
Editor’s Note: The following column by Larry May, Owner, Freight Management Systems, is part of Modern’s new Other Voices column. The series, published on Wednesdays, will feature ideas, opinions and insights from end users, analysts, systems integraters and OEMs. Click on the link to learn about submitting a column for consideration.
For companies looking for relief from high shipping costs and market volatility, a professional, third party logistics (3PL) provider can save an extra 18 to 25% off already heavily discounted LTL freight costs if they routinely make multiple shipments to multiple locations and work with numerous freight carriers. For every $100,000 in freight costs, that’s an extra $18,000 to $25,000 in savings.
How can a 3PL lower freight costs beyond a company’s existing discounts? By negotiating additional discounts based on the 3PL’s relationship, reputation, and volume business with established carriers.
A good 3PL will analyze current rates and freight requirements, and then bid out the work to qualified freight companies hungry for the work. An established 3PL, brokering a large volume of business with major carriers, can negotiate much better discounts than the manufacturer.
A good 3PL has ongoing relationships with 20 to 25 of the leading U.S. LTL carriers and relationships with Transcorp and Internet Truckstop, the largest load matchers in the country. This allows the company to consolidate a client’s freight with its own volume discount, put out a “mini-bid” to a few chosen carriers known to be a good fit, or put out a “full bid” for which up to 20 select carriers compete. Proprietary “best carrier pricing” software, which rates shipments from multiple carriers, helps the company to quickly and efficiently determine the best carrier at the best cost. With the software, customers also have the option of going online to check shipping rates themselves via a protected user name and password.
For any manufacturer making a product or receiving parts, allowing a 3PL to bid out freight and come back with a proposal is as close to a no brainer as possible in a competitive market economy. After all, there are no upfront costs or hidden fees paid to the 3PL. The 3PL makes its money based solely on a pre-negotiated percentage of savings delivered to the manufacturer.
There’s no out-of-pocket cost because the 3PL is only paid a negotiated percentage of the savings delivered. The savings come from a greater discount on less-than-truckload (LTL) freight, eliminating freight bill errors, and reducing in-house payroll.
Companies need to realize two things: one, to call around to the various truck lines and analyze the best carrier for a particular shipment requires a huge amount of man-hours. Second, to negotiate the discount rates with each carrier in what seems to be an ever-changing landscape can leave a company feeling like they are constantly leaving money on the table.
Some companies feel satisfied with the 77 to 80% freight discounts they are able to negotiate from carriers on their own but going with a good 3PL can cut freight costs by another 25% and take care of all the paperwork.
Because mistakes in LTL freight billing are common, especially in product classification, full service 3PLs should conduct freight bill audits. For instance, they should audit the National Motor Freight Classification (NMFC) code on the freight’s bill of lading to ensure it hasn’t been mis-classified at a higher rate.
Many factors affect how a freight rate is calculated: product classification, density, weight, value, distance moved, and damageability, for example. But the higher the NMFC classification, the higher the shipping rate, which is why getting it right, is key.
Working with a good 3PL can also contain the hidden costs of freight such as chasing down quotes, invoices and documentation, which can require a substantial in-house staff if done internally. It can also help to prevent potential production line slows or shut downs when needed parts are unexpectedly held up.
Companies should look for a 3PL that offers inbound and outbound shipment analysis, invoicing and reporting with appropriate backup documentation. One company that previously processed about 300 freight invoices a week, estimates that it reduced its required staffing by more than two employees when the 3PL began auditing, paying, documenting and consolidating its freight bills into a single weekly bill.
Customer service needs to be a priority. Customers need to know that when they have a freight emergency, their 3PL will stick with them through the end. They need a company that takes emails late at night, traces the freight online, and calls dispatchers and terminals to make sure deliveries are on schedule. They need someone to help with dispute resolution, when necessary.