If you’re a high volume parcel shipper, you probably have complicated relationships with UPS and FedEx. On one hand, your business would struggle (if not fold altogether) without their robust shipping capabilities and extensive transport network. On the other hand, though, at what point do costs stop their seemingly-endless rise? Is there relief in sight for parcel shippers?
Well, not exactly—at least not in the near future. Carrier rates continue to increase; in December 2021, both UPS and Fedex raised their base rates by 5.9% for 2022 and they have continued to raise service rates, change package standards, and increase fuel surcharges throughout the first few months of the year. This highlights the importance of optimizing transportation and the supply chain, conducting an accurate parcel invoice audit, and other elements of shipping optimization.
What are the factors that affect transportation costs? Among other things, the major carriers’ already-high shipping rates continue to climb due to increased volumes brought on by the challenges of the pandemic. More companies (and customers) are embracing eCommerce, meaning the carrier networks are operating at a high capacity.
And how are shippers responding? According to a recent Logistics Management roundtable, shippers are realizing the importance of planning ahead to mitigate risks, and developing plans to “focus on costs, capacity, visibility, and service.” In other words, they’re investing in robust data and analytics platforms—like ShipSigma—to better understand and respond to rate increases and other challenges.
This blog’s all about how to optimize transportation costs, and we’ll offer a few methods for better understanding—and strategically reducing—your overall transportation spend.
How Do You Optimize Transportation Costs?
While it’s difficult to provide a one-size-fits-all answer to this question, we’re going to introduce four different strategies to consider, including transport cost and logistics optimization. Neither is possible without a solid foundation of historical data, though, so we’ll start there.
Dig Into Your Data
To understand why you’re paying what you’re paying, and to identify where the cost-saving opportunities might be hiding, you’ll need access to complete, accurate data. ShipSigma’s industry-leading shipping insights and analytics platform looks at nearly 100 unique data points to help you understand rate structures and cost factors.
By digging into the details of package-level data (PLD) and carrier contracts, we’re able to provide actionable insights and optimization strategies. With a foundation of comprehensive, up-to-date, and accurate data, we can run cost modeling with machine learning, run what-if scenario simulations, analysis, and more. All of this means greater visibility into carrier rates and the ability to zero in on areas where optimization strategies and techniques can make an impact.
Transport Cost Optimization Techniques
There are a number of best practices high-volume shippers can apply in order to optimize transport costs and minimize or mitigate the impact of potential supply chain disruptions (should they arise). How do you develop a transportation strategy for cost-effective shipping? A few techniques to consider include the following:
- Shipment pooling: Combine orders destined for the same destination or geographic area to create a full truckload shipment. These shipments can then be directed to the most logistically-sensible distribution centers. Depending on the industry, shipment contents, and destination, it may make sense to consider multiple modes of transport (e.g., trucks, rail, etc.).
- Shipment aggregation: This is similar to shipment pooling, but specifically refers to creating a single shipment out of multiple orders with the same shipping origin and destination.
- Shipment consolidation: Consider consolidating multiple less-than-truckload, or LTL, shipments, by adding them to truckload-sized orders with available space. Then, plan for one or more stop-offs along the main route, to unload the LTL shipments before proceeding to the final destination.
Logistics Cost Optimization Techniques
There are also a number of logistical challenges that factor into transportation costs for shippers who work with the major carriers. How do you develop a logistics strategy to achieve positive outcomes? A few optimization strategies that can reduce logistics-related costs include the following:
- Re-evaluating business operations: There may be optimization opportunities in areas like warehouse layout and inventory organization, staff workflows and productivity, and leveraging technology that can uncover analytics-based possibilities for optimization.
- Understanding carrier options: High-volume shippers rely on productive carrier relationships, both in their day-to-day operations and especially when it’s time to negotiate. Make sure you understand the items that appear on parcel invoices, and press for explanation when you don’t understand specific surcharges or fees. (These are the types of things we look for when we conduct parcel invoice audits for our clients.)
- Considering product sourcing and packaging: While some companies harness cost savings through opting for foreign-made product sourcing, there are risks involved—like compromising customer trust or incurring additional taxes and shipping fees based on international commerce. There may also be cost savings or additional efficiencies to be gained by rethinking product packaging—such as the materials used or utilizing bulk packaging when appropriate.
- Evaluating reverse logistics: Shippers sometimes overlook the role returns play in their overall shipping and transportation spend. Some reverse logistics items to think through include:
- How returns are managed, including return policies and procedures.
- How defective items are handled—refurbishment or repair, for example.
- What to do with unsold goods or products that have reached end-of-life (EOL).
- Minimizing delivery failures, including the maintenance of critical equipment and technology.
Predictive Simulation & Rate Modeling
One powerful method parcel shippers can use to optimize transportation costs is the application of predictive shipping analytics. In simple terms, this means analyzing and evaluating past data and outcomes to develop a model for future cost optimization.
One of the most common applications of predictive analytics in shipping and transport is rate scenario analysis. With more data available than ever before, shippers can develop and apply predictive models to better understand and respond to variables like carrier rate changes and potential areas for savings.
Cut High-Volume Shipping Costs with ShipSigma
When you partner with ShipSigma, you can take advantage of our industry knowledge and proven technology. We’re able to guarantee savings of at least 25% by:
Providing comprehensive shipping insights and analytics to better understand your current shipping spend and create predictive rate simulation models to anticipate and optimize future spend.
Leveraging data and insights through parcel audit software and carrier negotiations.
Learn more about our platform and how we help our customers optimize their transportation spend. Get in touch to try it today.