Cost Containment
The dynamics of negotiating transportation expenditures in the supply chain have dramatically changed in recent years. From a multi-modal standpoint, each has its own set of principles which make it inherently difficult to quantify. This includes veiled Accessorial Charges all the way to Zonal & PCF calculators. While excel was once a valuable tool, today’s backdrop requires deliberate strategic planning, goals, and execution, along with extremely specific KPIs.
Implementing a successful RFP involves technological tools and a high level of data analytics to fully accomplish and achieve overall cost savings. Moreover, to attain end-to-end supply chain transformation, improving efficiencies, visibility, and overall ROI, cost containment comes to the forefront of the equation.
Created by:
Geoff Chambers
Director, Supply Chain Services
a Division of Scarbrough Consulting
UNDERSTANDING COST CONTAINMENT HOLISTICALLY
Since cost containment affects all departments in a company’s organization, it is counterintuitive to view transportation costs as a single functional silo. Therefore, a holistic methodology must be given consideration to reach the respective verticals of each department. As noted below, each silo has an intrinsic responsibility; however, looking at the structure from a holistic perspective, they are all linked. Just as scenario and supply chain planning must incorporate the entire organization, so too is transportation expenditures and cost containment an intricate balanced piece holistically. To create resiliency in today’s marketplace, it is paramount to move away from functional siloed positioning.
MODES OF TRANSPORTATION & COST CONTAINMENT
In 2023 we have watched a steady decline in Over the Road Truckload costs. While capacity remains very strong nationwide, the average rate per mile has decreased below pre-pandemic levels. Moreover, there has been a staggering number of trucking companies going bankrupt or purchased through acquisition. While the spot market has remained incredibly soft, it is also very cyclical. If we view the historic spot market from a circular standpoint vs. linear, we can see how pricing will rebound on an upward trajectory at some point very soon. The question becomes, is it better to ride the spot market or more prudent for your transportation accrual to lock in long-term pricing at favorable rates?
According to the US Department of Transportation, as of April 2023, there were over 750,000 active motor carriers that own or lease at least one tractor. Out of those carriers: 95.8% operate 10 or fewer trucks, 99.7% operate 100 or fewer trucks. Therefore, under the current market conditions, we can see how it will be increasingly difficult for the smaller carriers to sustain their current business while the larger carriers will overshadow the industry and set the benchmarks for future pricing.
Looking at recent statistics for Intermodal for 2023, all the IEPs (Intermodal Equipment Providers) have had around 16% of their equipment sitting idle. In some cases, mode conversion from truckload to intermodal at reduced pricing not only makes sense but provides additional cost savings. Since we work closely with the IEPs, this is another avenue for consideration. Shipping intermodal promotes your ESG imprint and often works well on shipments over 900 miles.
Two of the modes of transportation, LTL & Parcel, have remained steady, with Parcel having the highest GRIs (General Rate Increases) in history. With the recent bankruptcy of Yellow Freight Systems, which was the third largest LTL provider, there will be more pressure put on the six remaining long-haul LTL carriers. Both LTL & Parcel have implemented many veiled accessorial charges in 2023 to further compound the negotiations process.
However, Scarbrough Supply Chain Services has remained at the forefront of the changes to help you navigate overall cost reductions. With E-Commerce on the rebound, as well as the reduced number of LTL carriers in the marketplace and smaller shipment sizes, we certainly see both Parcel & LTL expanding along with an escalation of pricing. Understanding contractual agreements and applications is a key component in cost containment.
3 EFFICIENCIES OF COST CONTAINMENT
Within every company’s integrated business plan and adaptability to today’s marketplace, it is most important to quantify and implement efficiencies. Moreover, Cost Containment is not an exception in the calculation. Let’s briefly review some highlights of the top 3 areas of efficiencies in Cost Containment.
OPERATING EFFICIENCIES
Establish internal processes to streamline communication between departments holistically. Mode conversions & shipment consolidations. Optimized carrier pricing programs with unified fuel and accessorial matrices. Mitigation or reductions of GRIs (General Rate Increases). Volume transportation aggregation & cost containment solutions. Class exception performance.
OPERATIONS EXPERTISE
QBRs (Quarterly Business Reviews) with business intelligence on savings and performance. KPI metrics with data analytics and reporting. Zonal heat maps with weight delineation for Sales, Operations, & Customer Service. On-demand supply chain services consultation with over 38 years of industry knowledge and business acumen.
OPERATIONS ECONOMIES OF SCALE
Increased company productivity to focus on core competencies in the manufacturing or distribution business. Overall improved the value to your customers. Analytics to make qualitative assessments. Fluid transportation expenditures for effective financial accruals.
EXPECT MORETM FROM YOUR LOGISTICS PROVIDER.
Founded in 1984, The Scarbrough Group has grown its global logistics operation, one client and one employee at a time. Whether international freight forwarding, customs brokerage, transportation services, or warehousing, The Scarbrough Group manages supply chains differently. We remain a people-first organization with dedication to traditional values and support for our community.