How to reduce freight costs

Freight costs can gobble up a hefty chunk of a shipper's budget, especially when market and supply chain conditions push them skyward. But with the right tricks up their sleeves, there are plenty of ways companies can reduce expenses each year - even as freight rates, fuel charges and various fees fluctuate.

Freight and logistics costs can be unpredictable, but budgeting shipping costs need not be. From incorporating multiple freight modes (including intermodal transportation) to something as simple as relationship-building, following a few straightforward tips can empower shippers to effectively manage and reduce freight costs.

Understanding freight costs

To better understand freight costs, it's important to know the components that go into the final bill - linehaul, fuel and accessorials. Linehaul is the price to go from origin to destination - with distance (and in some cases weight/volume) factoring in. A fuel surcharge may be added to rates based on diesel pricing as either a percentage of the total linehaul cost or a cost per mile.

Accessorials refer to additional charges beyond the negotiated price for things like added wait time, special handling, etc. All of those factors combine with which pricing method is used between contract for long-term agreements or spot for one-by-one movements. For more on this topic, find our free Freight Costs eBook below. 

12 ways to reduce freight costs

1. Develop a shipping strategy

Developing a shipping strategy is in essence planning ahead for how your logistics operation should work and how it will respond to contingencies. In other words, it means forecasting shipping volume for the year (including when that volume will be at its heaviest), determining when other shipping modes may work, mapping out shipping lanes, allowing enough lead time for loads to avoid using expedited or air freight, and much more.

Creating a comprehensive strategy - which is greatly assisted by a managed TMS platform - offers visibility into all aspects of a freight and logistics operation. And the good news is, a good plan provides a foundation from which to continually make the best decisions no matter what comes your way. Simply re-evaluate it at given intervals to ensure it reflects your current needs.

2. Avoid peak shipping times

Part of a successful strategy is planning the best times to push shipments - namely when capacity is plentiful and rates (and fees) are low. The key "when" there is to move as much freight as possible outside of peak shipping times. During peak season, spot rates tend to be at their height, capacity - even for contract agreements - can be harder to come by, and surcharges for fuel, port usage and more often come into play.

A plan of attack to avoid most if not all of the costs and uncertainty of peak season simply involves moving the bulk of your freight ahead of time to ensure it's staged and ready when needed. If you're moving perishable goods, long-term contracts are a better bet to ensure capacity than playing the spot market during this period - and do build in added costs to your budget.

3. Use a Transportation Management System (TMS)

A transportation management system (TMS) is no longer a nice-to-have in freight and logistics - it's a must for a successful operation for shippers, brokers and carriers alike. The reason (or reasons)?

• Visibility into both your own company, your partners and the market as a whole
• Route and rate optimization
• Load boards
• Shipment track and trace
• Self-billing, freight audit & pay

Many more features come both out of the box of a leading TMS and via custom integrations with other software services. All this can be summed up by acknowledging the need to stay on top of logistics technology. Sticking with papers and phone calls - or even spreadsheets and emails - will leave a company firmly on the outside looking in of shipping success. 

4. Consolidate shipments

Consolidating freight whenever possible can not only save money, but save time and improve transit performance as well. Freight consolidation occurs when a shipper consolidates LTL (less than truckload) shipments delivering to the same region on a single truckload or intermodal load.

Even smaller scale loads can benefit by combining parcels into an LTL shipment. And in the retail world, retail consolidation allows the combination of LTL shipments with other similarly located companies to go to large retail chains. You can find consolidation opportunities through TMS software or by working with a 3PL (third party logistics) provider.

5. Explore multi-modal transport options

Modal conversion refers to switching a load from one form of transport to another, like truckload to intermodal or LTL to truckload. Exploring multi-modal options just makes sense, as moving from a more expensive to less expensive option whenever possible helps a shipper's bottom line. For instance, those stuck on truck for their shipping needs are missing out on the greater capacity and reduced costs of intermodal transportation.

Plus, pooling and consolidation can get shippers out of the more expensive LTL to more reasonable options. While it's not hard and fast at all times (and conversions don't always make sense), the least expensive to most expensive freight modes, as viewed by the cost per pound are:

• Ocean - Not only is ocean freight the most commonly used to traverse the globe, ocean container intermodal is an excellent option for domestic shipping.
• Rail - Rail freight logistics typically moves bulk items like tankers and farm crops - with logistics services coordinating the use of rail-only transportation.
• Intermodal - Intermodal transportation combines the flexibility of road with the capacity and long-haul prowess of rail. Benefits of intermodal transport include lower costs and a lower environmental impact.
• Truckload - Truckload shipping can get domestic freight anywhere there are roads, and beyond that, the benefits of using truckload include speed and granular control over your load.
• LTL - The definition of LTL is in its name - less than truckload. LTL freight solutions offer the ability to move smaller loads flexibly across the country via truck.
• Small Parcel - Small parcel involves moving individual (or few packages) between businesses or business to residential - think FedEx or UPS.
• Air or Expedited - Using expedited freight services for cargo is pricey, but it's sometimes necessary either to meet tight deadlines or to keep products from spoiling.

6. Conduct regular freight audits

Each freight move is a transaction, and with the sheer volume of transactions shippers handle, there's always room for error. That's where regular freight audits come in to save the day. To get more specific, studies indicate the average invoice error rate in the freight industry is 5% to 8%, so if the freight settlement is not handled properly, a company risks spending more.

Even with freight providers striving to minimize mistakes, a mere 1% error rate can lead to significant financial losses for larger shippers. That's why the freight industry boasts numerous specialized freight audit companies dedicated to helping shippers capture these savings while streamlining their internal transaction processes.

7. Secure contract rates

Having contract rates for shipping in place not only provides more cost certainty, but also leads to significant cost savings over time. By securing these contract rates vs. spot rates, companies can avoid the unpredictability and often higher expenses associated with the spot market, where prices can fluctuate wildly due to sudden changes in demand or supply chain disruptions. This stability in pricing allows businesses to plan their budgets more accurately and allocate resources more efficiently.

Further, by establishing contracts with multiple freight providers for your most critical shipping lanes, you add an extra layer of security against capacity shortages. This strategic approach ensures that you have reliable access to the necessary shipping resources, even during peak times or unexpected surges in demand, thereby maintaining smooth operations and avoiding costly delays.

8. Build relationships

Building relationships is good advice to live by in general, and it certainly applies to freight and logistics as well. If you've worked with a freight provider or two and have had positive results, look to build on that. Developing longer term partnerships - even beyond the length of any contract rate - can not only allow for potentially greater savings, but potentially greater efficiencies as well.

It's something InTek values, as we don't look for a quick spot buck. Instead, we want partners in success that lasts years - not a day here or there. 

On your end as a shipper, be transparent and show your trust in these freight providers of choice to further develop the relationship. And while this doesn't mean you should skip the annual RFP process and only stick with these carriers, it does mean you shouldn't automatically jump ship to another provider simply because they come in with a slightly lower bid. It may not lead to the savings you think it will.

9. Negotiate rates

In this case, negotiate means negotiate every potential cost. As you prepare RFPs and move toward the contract stage, ensure you're negotiating freight rates with providers. But don't just negotiate, negotiate with data. Use market data and not your own prior rates, or you'll be going into negotiations with one hand tied behind your back.

And circle back to the relationship-building mentioned above. If you're working with providers with whom you share a background of trust, you're likely to get consideration on rates while knowing the service will back it up.

Time your negotiations off-peak when possible as well, and you're likely to lock in better rates. Also, when working with LTL particularly, accessorial charges - for things like driver wait time, additional storage, and just about anything else unexpected - can be an unwelcome surprise. If you know certain accessorials are likely to occur for your shipments, pre-negotiate and save.

10. Streamline the inventory management process

Shippers must ensure they have the right amount of inventory in the right place at the right time. This involves meticulous planning, forecasting, and collaboration with suppliers and customers. When done right, inventory management is a great way to ensure a business will make money by meeting customer demand with the right amount of supply.

Ineffective inventory management on the other hand, can lead to stockouts and a scramble to use expedited options to get more product on shelves. Conversely but just as bad, it can lead to overstocking, potentially necessitating deep discounts or write-offs. Both negative outcomes drive up costs and decrease profits.

The shift to just-in-time (JIT) inventory management heightens the importance of proper management, as any disruption in the supply chain can trigger a domino effect, causing significant recovery time for a company. And with pull-forward also a recent trend in response to tariff uncertainty, it's again key to avoid overestimating demand.

11. Reduce dunnage

To properly block and brace shipments, materials like dunnage and dunnage bags help fill empty space in a container or trailer. Using other equipment like chocks (for wheeled equipment), wedges and walls is also common, as are various blocking methods to secure freight cargo. However, the goal should be to fill containers and trailers with as much product as possible to avoid shipping too many packaging materials - or shipping air. 

The savings is three-fold: reduced costs for time spent creatively securing cargo, reduced costs for packaging materials, and reduced number of containers or trailers being moved. It comes back to optimizing shipments as part of your broader shipping strategy - moving product in the optimal amounts at optimal times.

12. Outsource freight management

Using a 3PL (third-party logistics provider) can help shippers in a variety of ways - taking the logistics burden off internal staff, better connections, staying on top of technology, and more. After all, a 3PL offers myriad solutions to shippers, serving as a one-stop freight shop that can do as much (or as little) as needed depending on each company's unique needs.

But since we're talking costs here, another benefit of outsourcing freight management is, it can also save you money. How?

• Operational efficiency
• Cost of people
• Training of people
• Cost of technology
• Leveraging the buy of the carriers
• Using transportation management software for optimization of rates, modal conversation and consolidation (a few things you may have noticed from earlier on this list)

The importance of freight cost management

When working on freight bottom line, cost management is important not just to a logistics operation but to a business as a whole. Implementing any or all of our list of tips and tricks can help reduce freight costs - and help improve your operation - all at once. And at InTek, we're happy to assist in getting the ball rolling.

Just tell us what you need and we'll discuss how our expertise can help with the unique shipping challenges your business faces. Rather do a bit more research first? View our Freight Guides for comprehensive articles and our podcast for more on intermodal, and logistics in general.