By John Cole
In the last newsletter, we looked at how to identify two of the avenues to freight savings from my opportunity matrix. Now we’ll look at another three, again using real life examples found while working with clients…
Volume Leveraging. You may think there’s not too much to be learned here. After all, everyone knows it’s a fundamental negotiating tenet: whether it’s buying freight services or hiring videos (yes, you can still do that!); the more you buy, the lower the unit cost. But the number of times we’ve identified leveraging opportunities for clients has taught us that it’s a little more complicated. In fact, there are several reasons why leveraging opportunities can remain hidden.
If you can relate to one or more of these scenarios, it’s probably hurting you through excessive freight costs:
- Legacy Services
- Poor Understanding of The Market
Take an end-to-end view of your service needs (have a plan) and look for the commonality, not the differences that lead to a fragmented spend.
Understand who’s out in the market that can help you simplify and leverage.
This may seem a fine distinction, but in some cases, rate structure can be more important than the rates themselves.
There are many ways that the wrong rate structure can hurt you. Some are easily avoided if you understand your product and consignment profiles. But not everyone does, or the profiles change (remember that chemical company and their full load rates?)
Here are some real life examples where the client got it wrong:
- Paying for pallet spaces when the average pallet height is 1.2m
- Paying carton rates with a 25kg limit and not creating “ties” when your cartons average 8kg.
- Having 26% of consignments subject to a minimum charge.
- Paying a basic charge and kilo rate for a road service to deliver all your
With the right level of vigilance, these are pretty easy traps to avoid. But some are more subtle. These traps are intentionally set by the carrier: nothing dishonest, they just have a keen eye for where the profit is. Take a look at the following chart and table. (Don’t be frightened, I failed year eleven maths.)
Quite simply, the chart shows the consignment profiles of the client and the table shows parity of the weight breaks offered by the carrier. In other words, the percentage discount for each increase in volume. The comments below, taken from an actual analysis, highlight some of the mismatches, from the client’s perspective.
- Melbourne’s most common consignment size is 3-6 pallets. The relevant weight break is uncompetitive.
- The Sydney break structure is very flat compared with that of Melbourne and Brisbane. This is particularly significant in the range 1-2 pallets, which is the most common consignment profile for Sydney. However, due to the flatness, the rates are too high at all breaks.
- Brisbane has its most common consignment size at 22+ pallets. The rate at this break is the same as the one at 7-10 pallets, so is uncompetitive.
- The Perth rates have no weight breaks beyond 1-2 pallets, however, it is the 1-2 break that is most significant and that is uncompetitive.
I can assure you, any carrier will take this approach to your business. To be able to negotiate the best structure, you must as well. – See more at: Volume Leverage
Map the carrier’s offer against your stress points.
AND lastly, don’t miss out on some transport related videos here. You’ll need to look down the list to find them!
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