How to Reduce Freight Costs - Key Tips Many People Miss

I hope these tips will help you to better understand your freight costs and rates so that you can start to reduce transport costs.

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Understandiing Freight Costs: Key Strategies for Reduction

Freight costs are a significant concern for many businesses, and today's video addresses this critical topic. Recently, I hosted a webinar on saving logistics costs, and many questions centred around freight costs. Though there's already a lot of content on our channel about this, I wanted to revisit and emphasise seven key areas that can help you reduce your freight costs effectively.

Firstly, it's important to dispel a common myth: the inexperienced approach to reducing freight costs often involves simply asking your freight carrier for a discount. This rarely works because the freight industry operates on very thin margins, especially when dealing with commodity freight. Freight companies typically don't have much flexibility to lower rates significantly without jeopardising their sustainability. Therefore, it's crucial to adopt smarter strategies to manage your transport costs.

1. Volume Leveraging

One effective way to reduce freight costs is through volume leveraging. Many companies have different branches or divisions that independently negotiate freight contracts, often with the same carriers but at different rates. This lack of coordination leads to inefficiencies and missed opportunities for volume discounts. By consolidating your freight needs and negotiating as a single entity, you can leverage your total volume to secure better rates from carriers. The more volume you can offer a carrier, the better rates you can negotiate, improving your overall freight cost efficiency.

2. Matching Transport Resources to the Task

Ensure that the transport resources you use match your specific needs. This includes considering the size and type of vehicles, whether they have necessary equipment like tail lifts or crane attachments, and other specific requirements. When renegotiating freight contracts, consider these factors to ensure the resources provided are appropriate and cost-effective for your operations.

3. Understanding the Rate Structure

Another critical aspect is the rate structure. Rates can vary significantly depending on whether they are based on weight, volume, or other factors. It’s important to ensure that the rate structure aligns with the types of shipments you typically handle. For instance, if your shipments are generally single pallets, you need a favourable rate for single pallet shipments, not just for larger volumes. Understanding and negotiating the right rate structure can lead to substantial savings.

4. Service Agreements

Carefully review your service agreements with freight carriers. Understand the specific services provided, performance metrics, and any additional costs such as fuel surcharges. Ensure that you are getting good value for the services rendered and that all terms are clear and beneficial for your business.

5. Service Type

Make sure you are purchasing the correct level of service for your needs. For example, if your customers are satisfied with next-day delivery, there is no need to pay extra for same-day service. Conversely, if your customers require next-day delivery, ensure that your service agreement meets this requirement to avoid customer dissatisfaction.

6. Dedicated Resources

For some businesses, having dedicated transport resources can be beneficial. This is especially true for industries with specific needs, such as the steel industry, where specialised vehicles may be required. If you opt for dedicated resources, ensure that you are fully utilising these assets to justify the cost.

7. Capacity Utilisation

Finally, ensure that your freight capacity is well-utilised. Avoid paying for empty space by matching the size of your shipments with the appropriate vehicle capacity. Efficient capacity utilisation can significantly reduce your overall transport costs.