Fuel and freight make up nearly two-thirds of logistics costs. Supply-chain and logistics managers need to optimize those costs to improve the bottom line.
Transparent and accurate data can help shippers move from reacting to market changes to proactively and effectively managing transportation costs and outcomes. By gaining increased transparency into fuel and freight expense, shippers can develop a transformative strategy for the organization.
The adoption of technology and availability of innovative solutions in the transportation industry have evolved over the past 10 to 15 years, providing greater access to data and information. A key benefit of the trend is the ability to more precisely manage targeted aspects of the transportation network.
Shippers can now access lane-level details of their logistics networks, along with associated market-based costs. As a result, they can enact incremental improvements to transportation strategy, increasing their competitiveness in a market that demands goods faster than ever before. To achieve this capability, however, they need to adopt an entirely new approach to employing technology and problem-solving.
Those who embrace the power of technology and data gain the potential to increase awareness not only of the network, but how it interacts with the greater transportation ecosystem. With access to the right data, shippers can gain deeper insights into freight flows, capacity supply and demand at origin and destination, and the variables that impact price in different regions. In the process, they can come to understand the broader transportation ecosystem and its impact on network operations.
Consider a common practice like rate benchmarking. Historically, it has been one of the few tools that shippers can use to get a sense of how their network compares to others. When they rely on a single benchmark to gauge success, they’re unable to see the full picture of where opportunities to capture value lie. Rates are simply the outcome of a complex set of variables for each lane on which shippers moves freight. They need to understand how such variables, like live-load requirements, compare to those of other shippers on a given lane.
In addition to looking at rates, shippers should be armed with data that compares carrier profiles, brokerage use, and diverse modes (such as intermodal) to similar shippers on that lane. Only then can they make meaningful changes in their networks.
Transportation should not be viewed as a commodity. The performance, fit, and cost of working with a specific carrier should all be taken into account when considering how best to modify or grow a carrier base. For most large shippers, large carriers will make up the lion’s share of their capacity. Yet there’s value in maintaining a diverse portfolio to include small, medium and regional players in a robust and effective transportation network, especially in times of tight supply.
Establishing such relationships, however, is easier said than done. We often hear that shippers don’t know how to find regional carriers that are a strong fit in specific areas of their network. This is where an understanding of the transportation ecosystem surrounding a shipper’s network is useful. Knowledge of each carrier’s area of operation allows shippers to discover opportunities that fit unique niches within their network, and lead to mutually beneficial relationships. A well-rounded carrier network is the best way to create stability in both service and cost in a constantly changing transportation market.
To navigate these new relationships, and secure best-in-class freight services, carriers need transparent data. Such a foundation puts shippers and carriers on an equal footing, and allows them to meet expectations around price, service, volume tendered, and freight accepted. A relationship based on trust and transparency allows both parties to elevate their operations and explore new ways to create value together.
Transparency might not always be the lowest-cost option, but it leads to more effective partnerships and results in cost efficiencies downstream. A shipper’s job is to deliver products to customers on time, so ensuring that partners can execute on a promise is essential. So too is the need to create budget stability and a platform for cost reduction and continuous improvement.
When shippers have an ongoing understanding of how the network is operating and the transportation ecosystem around them is evolving, they can identify areas that are working well, as well as those where they should be making changes to capture additional value. This robust approach to securing relationships at appropriate prices can help shippers avoid the low-cost trap, which frequently falls apart only a few short weeks after a routing guide update, leading to fines or high-cost brokerage solutions.
Both effective and financially prudent outcomes are essential to every organization, so finding a balance between the two is necessary. Access to the right data makes outcomes measurable, and allows shippers to craft better solutions. Strong relationships with carriers will improve not just the quality of transportation within a single network, but across the entire transportation industry as well.
Heather Mueller is chief operating officer of Breakthrough, a provider of fuel-management services for the supply chain.