Historically, the connotation of freight management was changed and reshaped many times. In general, it refers to all the processes that cover preparing, shipping, storing and receiving freight.
What is freight management?
Freight management is the service provided by freight forwarders or third-party logistics companies. It suggests matching loads to freight carriers, route planning, and the optimization of the transportation process.
Why do you need freight management?
Whether you are a large enterprise or a small business, cargo management can be complex. Even if you know the exact obstacles in your way, it may be challenging to put the overall picture together. Additionally, freight shipping involves numerous processes. To manage all of them efficiently, you need to pay attention to details and focus on everything simultaneously.
Attempting to handle all of this on your own won’t end well for your business productivity. More companies now realize the complexity and importance of logistics and transportation management and outsource it to external parties. Apart from peace of mind, delegating such a large branch of business can result in substantial cost savings and a much better operational efficiency.
How does freight management work?
If you consider outsourcing freight management, you would probably wonder: how does this process work? First, you need to understand freight forwarding and freight brokerage.
These are specific departments in the logistics company that are responsible for finding a carrier that can and wants to move your load. This is one of the key parts of the load management process because brokers can find the appropriate vehicles for your specific needs. They also negotiate freight rates for you, and these rates are lower than you would find on your own.
Third-party companies have a significant advantage over in-house logistics departments, due to their relationships with carriers. Combined with industry expertise, third parties can provide efficient management and drive cost savings.
What does good freight management include?
Apart from freight forwarding, cargo management actually includes many different aspects. If you are looking for a freight management company, here are the main things it should provide to you:
Have you ever been in a situation when your or your customer’s freight has been held hostage?
Hostage load scenario is stressful and unpleasant for all the parties involved, and the resolution might be very time- and energy-consuming.
Being prepared and aware of the potential risks is the best way to try and avoid these situations as much as possible.
Why do carriers hold freight hostage?
Carriers might refuse to deliver a load until their demands are met. Not surprisingly, the demands are usually payment-related. A carrier might be looking for payment or guarantee of the payment before they release the load for a variety of reasons:
Previous payment history
The carrier either has not been paid for the load they have hauled in the past and demands the payment for it before delivering the load in question, or has previously faced significant deductions on other loads and wants to be paid for the load in question upfront and in full.
The original destination has been changed after the load picked up, and the carrier is looking for the rate increase for the extra miles or having to cancel their planned reload.
Significant changes in load details
The carrier is looking for more money that initially agreed for hauling a load which is different from what they have been told originally (weight increase, dimension change, temperature, etc)
The carrier has been held at the shipper for a while and refuses to deliver a load until they receive a guarantee of the payment or the payment itself with the detention charge added.
The carrier is aware of a potential claim or back-charges on the load they are hauling and refuses to deliver a load until they are sure they will be paid in full.
In a double-brokerage scenario, the actual carrier might have a problem with the ‘originally contracted’ carrier and hold the load hostage until the latter meets their demands. In this case, taking care of the issue might get even more messy.
What can you do to prevent this?
Communicate and notify carriers of possible changes as soon as possible
Know your lanes, facilities and common issues and plan them in
Use Rate Confirmations/Carrier Agreements to outline the requirements
Use carrier vetting by implementing the use of public records as well as internal database and historical data
Know double-brokerage red flags and stay away from it
Focus on creating long-term partnership with carriers and using dedicated carriers for your dedicated lanes
Both, the carrier and the shipper/broker have their reasons to stand their ground – the carrier is afraid they will not receive any payment for hauling the load if they just trust their opponent and deliver it, and their counterpart is afraid to pay upfront and never have the load delivered. Arriving to a consensus might be a tough task, and there are constant disputes about the best strategies you can use. Sometimes the easiest way to resolve it is to provide a legal guarantee of the payment once the load is successfully delivered.
As of June 2016, the U.S. economic outlook is uncertain. There are hopeful signs: employers are still hiring new workers, more jobs and cheaper gas have led to a small bump in consumer spending, and home builders are in full swing. MarketWatch predicts 2.5% GDP growth in the second quarter of 2016.
And, there are signs of an impending recession: consumer spending was severely hampered by education and healthcare costs despite cheap gas, overall inventory to sales ratios are high and continue to rise, and the Chinese economy is stumbling.
With conflicting signs, nobody can say with certainty where the U.S. economy is headed. But given the damage the 2008 recession did to the freight transportation industry, questions have to be asked – what happens if there’s another recession? How will this impact freight transport, and how can that impact be mitigated?
The Freight Shipper’s Recession
During a recession, when freight volumes are low, shippers have negotiation leverage and carriers must lower their prices. This is a favorable pricing condition, but when all other factors are accounted for, the freight market is far from favorable for a shipper.
Slow demand creates high inventory levels and subsequently high overall logistics costs for shippers, a hard pill to swallow during a recession. In difficult times, shippers typically downsize transportation and logistics departments, leaving just a few employees with the responsibility of finding freight savings.
During an economic recession, carriers try to shift as much business as possible to non-cyclical items such as food and beverage. This can leave shippers of durable and discretionary goods without reliable capacity or paying inflated freight costs. Consumer packaged goods (CPG) shippers and retailers are left shipping partial loads – a much slower and worse service than shipping full truckload or door-to-door service.
The impact of a recession depends heavily on the type of freight being shipped. On a general level, though, shippers are faced with worse service, sky-high inventory costs leading to lower priced products and understaffed logistics and transportation departments to manage the movement of goods.
Solutions for Freight Shippers
When times are really bad, just as when times are really good, shippers of all kinds turn to 3PLs for assistance with logistics management.
Typically, when a logistics provider is tasked with managing freight during a recession, the first step is to implement a TMS, which is almost always free with logistics management services. From there, previously hidden cost savings opportunities are found and applied immediately.
3PLs are of particular value during a recession because they can act like an in-house transportation department at a lower, scalable cost; but they can also serve a more asset-oriented option, taking direction from a transportation department. The transportation solutions can be custom made to help a specific business get through a tough time.
The Freight Carrier’s Recession
An economic recession is hard on carriers. Around 800 trucking companies went out of business in the Great Recession, while many more had to significantly downsize. Another recession, after the impact of the 2008 downturn, would be harmful. Lower freight volumes paired with necessarily lower freight rates are devastating to carriers’ profit margins.
Trucking employment closely follows the state of the economy – not many industries are hurt by swings in economic activity like freight transportation. When consumer demand is down, freight volume is down, carrier revenues are down, and less personnel is needed to move available freight, so carriers must let go of employees in large numbers. This complicates operations, hinders their ability to handle any fluctuations in freight volume and makes it more difficult to rebound after the recession is over.
On top of this, many truck drivers quit during down economic times. Since carriers are competing for freight to haul, it can often lead to unfriendly routes or lots of time away from home, but mostly, it means lower pay for the drivers.
A recession limits carriers’ ability to invest in new equipment and technology. This is a problem because the government constantly has new equipment mandates for carriers to comply with environmental and safety regulations. Carriers are forced to invest in new equipment all at once, again making it harder to ever properly bounce back from a recession.
Solutions for Freight Carriers
There are two things carriers can do to try and stay afloat during a recession. Which solution a carrier leans toward depends on their current business model and vision for the future of the company.
One solution is to integrate a TMS. In 2008, LaValley Transportation loaded up on assets in the worst part of the downturn. This might seem crazy, but it worked. By buying more trucks, they collected business from other carriers who were going bankrupt, and set themselves up for further success as soon as the economy started picking up again.
Another solution is to dump assets. A carrier can receive an initial lump sum for doing so, which can be helpful to get through unprofitable times. Also, many of the most profitable carriers are making moves towards being more like an asset-light transportation provider, as opposed to an asset-heavy trucking company. There’s less risk involved in an asset-light business model and it’s more scalable.
Shippers and carriers both will be hit hard if there’s another recession, especially due to the prolonged effects of the Great Recession. Transportation strategies will have to be altered to adapt to a drastically different freight market.
Freight transportation is a subset of logistics management. Transportation involves moving goods from one location to another by any mode (air, rail, barge, maritime or road). Transportation is an expensive and emission-heavy process, making it an ideal target for carbon footprint and cost reductions. But many companies overlook the importance of transportation management.
What are the benefits of transport management?
TMS Logistics & Visibility
Proper transportation management beginswith a transportation management system (TMS). A TMS will automatically tender loads, track shipments, and gather and analyze historical performance data. This data, often referred to as big data, allows a company to see what’s happening in its shipping operations. Once visibility is gained into transportation operations, changes can be implemented to increase efficiency and customer satisfaction, reduce transportation spend, and optimize packaging or stored procedures that are harmful to overall supply chain goals.
Effective transportation management keeps a company’s whole supply chain running smoothly. With successful transportation execution, inventory can be kept lean and can be moved in and out of a warehouse quickly and efficiently. This improves warehouse efficiency, reduces overall lead time and saves money on storage. Supply chain disruptions can be costly while hurting customer satisfaction and loyalty. Creating effective inventory flow through transportation avoids damage caused by the disruption.
Consumers are more and more aware of what it is they’re buying and what ideals a company subscribes to. Also, transportation is an emission-heavy industry. Customers want to buy from companies who take social responsibility seriously and work hard to reduce their carbon footprint and minimize their energy consumption. Having inefficient transportation processes increases these environmentally-hazardous processes. Also, it can make a product unappealing to a customer due to the harm that comes with it.
Preferred Shipper Status
The ATA estimates the transportation industry is currently short 48,000 truck drivers. This shortage is expected to grow to 239,000 by 2022. A truck capacity crunch is due to the significant lack of drivers. Since there is much less trailer space to go around, shippers must compete to secure capacity. A company that has optimized transportation processes, such as short dwell-times and long tender lead times, will be a preferred shipper and have an easier time finding capacity because carriers will want to work with someone who boosts their efficiency. Having access to reliable capacity in the coming years can save logistics costs. Additionally, it can continue to provide a high level of service for customers.
The processes in between procurement and shipping can be long and complicated, but out of all of these processes, transportation is the one where a company has direct contact with a customer. The point of delivery reflects the competency of the entire organization – if a company is constantly delivering products late, the customer will have a very negative view of this company and will likely not use their services again. Last mile logistics, the last stretch before delivery, is complex, costly, and it is often this part of the delivery that causes disruptions and delays. Proper management of transportation can ensure high delivery performance and consistent customer satisfaction. Therefore, the importance of transportation management is hard to overestimate.
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PLS Logistics is partners with a consumer goods manufacturer which has multiple locations. The client sells products to major retailers such as Walmart, Ace Hardware and Lowe’s. The company’s annual freight spend is a few million dollars.
When the client was pressured by its retailer buyers for lower costs, they needed to optimize transportation management to find cost savings. The client felt they could decrease overall transportation spend, but they had no visibility into the shipping processes and could not identify any inefficiencies.
PLS assessed the consumer goods manufacturer’s transportation functions and found several problems, which included:
Widespread dysfunction in the decision-making process
Manual logistics functions and overwhelming paperwork
Poorly managed LTL freight movement
Fragmented carrier base, missed deliveries
All focus was on outbound freight, inbound freight was ignored
PLS suggested numerous solutions for the manufacturer. First, PLS integrated PLS PRO with the customers ERP to gain visibility into transportation processes. Then, PLS put an inbound vendor management strategy in place to cut costs and optimize freight moves. PLS worked with the company and its carriers to address delivery performance, scheduling and lane analyses. The carriers were given tactics to quickly fix errors when they occur. PLS developed and implemented a solution eliminating manual freight payments and audits; adding a monthly reporting process in order to give the CFO information on growth and savings.
In the end, PLS met all of the customer’s needs for monetary and time savings:
Improved claims processing and settlement
Streamlined carrier management and sourcing
Opened new opportunities throughout the supply chain
Implemented new programs (inbound, drop trailer)
The client saved over 500 man hours through automated billing processes and an integrated TMS. The company saved $36,000 on inbound freight alone and achieved 12% savings on outbound transportation. Total transportation savings amounted to over $284,000.
With the variety of materials being shipped throughout the country every day, you’re bound to run into a problem or two along the way. Knowing how to solve these problems ensures a more efficient shipping process, and more importantly, a healthier bottom line. Here are some tips for freight shipping – commonly asked questions and problems that many shippers and 3PL providers experience on a daily basis.
Tips for Freight Shipping:
Adjustments often happen when freight carriers provide information to the shipper that is not accurate with the actual shipment details.
There is a multitude of different kinds of adjustments, including:
Oversize fees – Any shipment that is found to be more than 12 feet in length and not reported as such can mean costly fines to the shipper. Being forthright with the correct freight dimensions early on can help you avoid this fee altogether, and while you may pay a slightly higher rate, it is nothing compared to the fees you will face if caught with an oversized load.
Residential fees – A residential fee comes into play anytime the final destination for delivery is not a business. Making sure the final destination is clearly marked on the bill of lading will ensure that you steer clear of this fee.
Re-classification – Incorrectly marking the freight class is another careless error that can cost you a lot of money. Make sure you check the NMFC website to make sure your freight class labels are accurate.
Packaging Fragile Items:
It goes without saying, but ensuring that all fragile cargo arrives to its final destination undamaged is of the utmost importance. It’s best to contact the carrier directly for their recommended packing instructions since it may vary from carrier to carrier.
Freight Weight and Dimensions:
If you’re looking for more in-depth information on freight classes and shipping dimensions, read our post titled “What Determines LTL Freight Class.” In it, you’ll find a detailed breakdown of all eighteen U.S. freight classes, as well as the height, weight, and volume limits on these classes.
Some loads are too large to fit on a standard shipping pallet. Luckily, many shipping companies and 3PL providers offer customized packages for shipping oversized loads. Look for a provider with experience and high levels of customer satisfaction. This will be a good measurement as to how well they handle shipping oversized freight.