To underline the leverage an MDI of over 14 provides trucking companies, consider that the market equilibrium resides at an MDI of 7.0. Essentially, Shippers take control when MDI dips below 7.0, and carriers have the upper hand when MDI is above 7.0.

Although the carrier industry as a whole is doing well, companies are still trying to work with a number of serious problems. The volatility of the price of fuel has been causing problems for years and continues to affect transportation pricing. So too does a harsh regulatory environment, including the new CSA compliance monitoring system and restrictive hours-of-service proposals. Perhaps worst of all, the perennial truck driver shortage: A problem that seems to disappear when the economy is on the downfall, then rise again as soon as volumes begin to pick up.

As a shipper, the best way to stay ahead of the game is to manage your transportation budget more effectively. BirdDog offers a completely outsourced transportation management solution combining our best-in-class managed services and our proprietary, online transportation management tools. This combination helps your organization manage each phase of the transportation life cycle while maximizing operational efficiencies.

BirdDog Solutions and our Foley Carrier Services division have worked very hard over the years to develop a group of preferred carriers we can count on when capacity in the market is tight.  These companies are all compliant with the new CSA regulations as well as BirdDog’s strict qualification standards for safety, insurance, maintenance and service. BirdDog’s team of logistics specialists, dispatchers and engineers assist with planning and tactical execution support. With one-stop accountability, we can collectively reduce your shipping expenses by 10% to 20%.

Mollie Campbell

With input from Rich Clark, Lead Logistics Specialist at BirdDog Solutions, Inc, Neil Skea, Customer Logistics Manager, at BirdDog Solutions, Inc. and Alex Rose, Technical and Marketing Writer at Foley Carrier Services, LLC – A BirdDog Company.

Going back to the procurement framework, outlined in the first Stop Buying Transportation. Procure It! article: the first aspect to consider is your shipping profile.  How much will you be shipping  and when will you be shipping it?, Where is it going, how much does it weigh, and what type of freight— all these items and more dramatically affect your negotiation leverage. For example, if you only have the occasional LTL shipment, chances are, you’ll be better off with a third party logistics provider. 3PLs have the volume to negotiate better deals with the carriers as well as the resources to help coordinate your shipments. In addition, determining when to use LTL can be tricky: The general rule of thumb is that if it has to go on a pallet — and you take up less than 25% of the truck — LTL is the way to go. If, however, you find yourself shipping pallets with less than 30 cartons, be aware that parcel hundredweight may prove a much better, less costly alternative. Similarly, if you exceed 10 pallets or 12,000 lbs. you should consider truckload as an alternative mode. Keeping a close eye on shipping trends is also a must, as consolidating LTL shipments into a multi-stop TL may be feasible and considerably more cost effective.

Once you have identified the portion of your shipping volume that can be allocated to LTL, and that the volume is meaningful, the next step is to secure competitive rates. The carriers use highly complex pricing structures, or tariffs, that take into account weight, distance, and the type of freight that you’re moving. The base price for each shipment is established on each of these variables, then a discount is applied. To obtain a competitive discount, you’ll need to show the carriers why your freight is attractive to them (volume, pick up locations, type of freight, etc.) and you’ll need to know what negotiation leverage you have, as discounts vary widely from customer to customer. This makes analyzing carrier bids a daunting challenge, as each carrier prefers to use their own tariff. You have the option to ask the carriers to bid on a standardized tariff, such as SMC³’s CzarLite Tariff, but you will have to give a few inches on price for that convenience. To achieve maximum results, tailored analytical software and deep domain expertise is required.

Finally, you must consider how LTL fits into your overall business objectives and capabilities. Despite the obvious benefits of not having to “rent” a full truck, some inherent drawbacks with LTL can still cause you headaches. You are sharing the truck with others, therefore your shipment will get transferred at terminals,  increasing the risk of damaged pallets, delays in transit, and difficulty pinpointing exact delivery times. To minimize damages, pay careful attention to packaging and how you stack your pallets. To minimize delays, clearly mark not only the Bill-of-Lading, but also the pallets with instructions. For example, we’ve been working with a customer who has time sensitive shipments — delivery has to occur on a specific day of the week between 8am and noon. Delivering a load a day early or a day late has equal negative financial consequences to that customer. Most shippersfear such a project because of the lack of control over the actual delivery timeframe, but it can be done with the proper resources and communication. By working closely with the customer and the carriers, on time delivery is at over 95%.

With the right procurement strategy and the resources to manage your shipments, LTL is a great option that should be part of your overall transportation procurement strategy. If you’re looking for advice on how to structure your program, we’re always here to help.

Raymond Nieuwenhuizen

With input from Todd Benge, Managing Partner of BirdDog’s Professional Services Team, and Elizabeth Hamm, Dispatch and LTL Specialist.

Which Services Are Being Raised?

While FedEx and UPS are keen to promote their rate increases as 5.9% and 6.5% respectively, those, of course, are just an average. A closer look at the numbers reveals that, for both carriers, individual services have been selected to take a bigger hit compared to the others. To begin, let’s look at what’s taking the hardest hits and what is being spared from the hefty hikes.

Note that both carriers have limited the increases to their bread and butter services but have added significant hikes to the more exotic ones. This was consistent between the two carriers, across all of their services:

What About the Fuel Surcharge Decrease?

Both FedEx and UPS have expended a reasonable amount of Marketing dollars highlighting decreases in fuel surcharges as a means to offset a significant increase in transportation costs. FedEx is offering a 2% decrease, as is UPS for its Package services. As we discussed in last year’s FedEx rate increase article, fuel surcharge decreases are not nearly as effective at reducing costs for shippers as the carriers would like you to believe. Since fuel charges vary from month to month, it is highly unlikely that the full 2% would actually be realized.

Increases by Weight Range:

Once you break past the individual service rate increases, the picture continues to be fairly bleak. Let’s take a look at the average increases by weight group. UPS have actually increased the average cost of sending a letter by an eye-watering 8.1%, making the 6.1% increase of the 71-100 lbs. segment seem warm and friendly by comparison. FedEx were less dramatic but still managed to hike the 1-10 lbs. segment by 6.5%. Interestingly, they also to chose to ease back on the 71-100 lbs. segment, raising it only 4.9%.

Increases By Zone:

When we review how the increases were spread across zones, an interesting trend appears. It would seem that FedEx were feeling a little more charitable towards their customers compared to UPS. Taking a close look at 2^nd Day Air highlights this trend. FedEx raised rates by an average of 6.0% compared to UPS’ average of 7.3%. Shipments going the shortest distance from your origin point are being lumped with an average 8.2% increase. In fact, UPS’s smallest increase of 6.1%, reserved for Hawaii and Alaska shipments,  is nearly as great as FedEx’s largest — Zone 2, 6.9%.

What This Means for Shipping in 2012:

Those are the facts — so what does this information mean for shipping in 2012? The global economic outlook is still unstable and it is causing the carriers pain. As we can see from this data, for the most part, the carriers are passing that pain right to their customers. The general conclusion is thus: If you are relying on the general rates, you will be forced to absorb, or pass on to clients, sudden price increases. Neither of these options is good for your bottom line. Instead of subjecting yourself to these yearly increases, taking a strategic procurement strategy is a far more effective method of establishing a shipping program that works to your benefit as well as the carriers.

As we have discussed before, procurement success relies heavily on your ability to analyze your data and in-depth knowledge about the carriers. Assuming you can master those two components, you will be able to generate savings and control your costs. Unfortunately, getting a hold of the data, tools and experts to create a meaningful procurement strategy can be difficult. Instead of attempting to take on such a strategy solo, utilizing a Carrier Contract Negotiation service may be a much more effective way of keeping your shipping costs under control.