As we explained in our previous post (Demystifying LTL), managing less-than-truckload (LTL) transportation can be less difficult than you might think, especially if you understand how these services are priced. But having cracked the LTL pricing code, how can you make the service more cost-effective?
Shippers often find major savings opportunities when they work to increase the density of the cargo they flow into LTL networks. This is not surprising given LTL’s fragmented nature compared to full truckload service.
A first step to solidifying shipments is making sure that you have 20/20 visibility into the variables used when sourcing LTL capacity. These include accessorials, shipment weight, class, rate, service levels, and receiver requirements. We touched on these values in the previous post. Note that in addition to providing a firm foundation for cost-cutting strategies, clear visibility into the building blocks of LTL shipments also streamlines the RFP process.
The next challenge is load and order consolidation. Tools such as transportation management systems are used to consolidate loads – particularly in a dynamic environment – and the technology has become much more sophisticated over recent years. But don’t underestimate the importance of order consolidation. There may be multiple LTL shipments from the same origin to the same destination on the same day, for example, and each one is billed separately as a distinct order.
Amalgamating bills reduces the administrative burden and can create more cost effective rate structures. For example, five shipments which previously hit minimum charges now move together at a 500 lb discounted rate. These changes can add up to significant cost savings. Collaborate with core carriers to develop consolidation initiatives that are mutually agreeable. As mentioned above, these steps also prepare you for future RFP exercises; another key component of an LTL cost reduction strategy. After all, you need to have a clear idea of the shape of your network before appointing or reappointing carriers capable of connecting the dots.
If you genuinely understand and have maximized cargo densities regionally or nationally, you can leverage this effort to help you select LTL service providers. Choose preferred carriers – and/or providers that collaborate with other carriers – that optimize freight movements as they are tendered. This approach creates win-win relationships because shippers benefit from streamlined operations while carriers capture freight in volumes that make business profitable. Also, work with core service providers to make sure that the network meets your service goals and expectations, using rate and asset adjustments to fine tune the network. After giving the incumbents first right on the lanes they have historically served within agreed pricing thresholds, other carriers can bid on the freight that remains.
We have suggested in a number of posts that shippers should carry out regular procurement exercises in order to ensure that they are in synch with their service providers (see Avoiding the Two-Year Carrier Pitfall). The secret is to achieve the right balance. When too much time elapses between bidding events chances are that the network has drifted out of alignment. On the other hand, too many RFPs disrupt the partner relationships that underpin a well-run network.
Achieving the appropriate balance is especially important in the LTL space. The aura of complexity often deters shippers from carrying out the appropriate number of procurement exercises. These should be part of a well-planned strategy, and not ad hoc responses to performance-related problems.
The economics of LTL shipments is based on cargo value and density, and in that respect, the service is in fact more involved than full truckload. However, shippers that take the time to understand LTL may be surprised by how much they can raise the efficiency of their networks by using this service.