Deregulation in the motor carrier industry has created a tremendous opportunity for shippers to negotiate rates with their motor carriers based on their own shipping volumes and annual revenues. This has created a vehicle for shippers to reduce their transportation costs and for carriers to lock in business for a stated period of time. Today many LTL motor carriers are offering discounts in excess of 70%. Sounds like quite a deal! Well, sometimes it is and sometimes it is not. Let us give you some insight into a recent freight rate negotiation we completed on behalf of a client with their primary motor carriers.
The client used a total of three different freight carriers with carrier “A” receiving over 95% of the annual business. The client had a long-standing relationship with this carrier who continued to increase its discount percentage to offset the annual General Rate Increases it was taking every year. At least that is what the client thought. When we approached this client to perform a “Free” freight cost analysis to see if we could save the client any money by negotiating contract rates with its current carriers, we were told by the client “we don’t think you will be able to save us any money because we are receiving a 78% discount from carrier “A”.
The reality is that until you can perform an analysis of the client’s shipping patterns, shipping volumes, product classifications, carrier base rate structures, accessorial fees and charges and the like you really do not know whether you have a good or a bad deal. Our client was intrigued by our “Free” analysis and thought it was certainly worth the challenge.
We analyzed the most recent six months of actual shipping data for this client and benchmarked the primary carrier’s rates with other carriers offering similar services and transit time service levels. We then submitted bid packages to all of the incumbent carriers. The data contained all of the pertinent information the carriers needed to assess the “value” of the business being offered. Our bid package indicated the client was amenable to single sourcing all of their LTL volume to one carrier. The results were astonishing. The incumbent carrier offered a proposal to reduce its current rates by 30%. That alone would bring significant savings to the client’s bottom line at a time when it is sorely needed. The best offer, however, came from a competing carrier who was only receiving a small portion of this client’s business. This carrier offered rates which would lower the client’s current freight expense by over 61%. Now that is a remarkable savings to put on our client’s bottom line.
The reality is discounts are offered by the motor carriers as a way of enticing shippers to tender their business to the carrier. The real question that needs to be asked, however, is this. How does this 78% discount stack up against the competition? The problem is that most shippers do not have the capability of measuring one carrier’s base rates and discounts against another. It is important to point out that you do not necessarily have to switch from one carrier to another to drive costs down. Carriers are looking for long-term commitments and our client was agreeable to a two year contract which certainly benefits both parties. It’s all in the presentation of the data which will provide the carrier with all the details they will need to make an informed decision about the rate levels it is willing to publish. And remember, “Knowledge is power” and it takes someone with knowledge of carrier costing models and freight rate structures to really determine if a company is overpaying.
If you would like a “Free” analysis of your current freight cost structures to ascertain potential savings opportunities, please contact Tony Nuzio at (516) 822- 1183, ext 312.