Carrier invoices make up the largest cost component of freight shipping. To reduce freight costs, companies rightly focus on securing low rates from carriers. But one cost-saving strategy that is rarely employed is to reduce the dollar impact of shipping mistakes or delays. Our research on the real cost of shipping mistakes indicates you can reduce costs from 15% to 20% through better management of these problems.
Let’s be clear. We’re not talking about eliminating shipping snafus. Bad stuff is going to happen – whether it’s due to weather, traffic, paperwork glitches, or some other reason. We’re talking about minimizing the financial impact of those problems when they happen.
That comes down to carrier choice.
If your carrier selection process starts and ends with the freight rate, you are missing a big part of the cost equation.
A Tale of Two Deliveries
Miscommunication with a retailer’s distribution center (DC) resulted in DC staff refusing a load on a Saturday, which they said was due the day prior.
- CARRIER A simply communicated the situation to the shipper, who was left to troubleshoot the problem during a weekend. Aside from the time costs to coordinate a solution, the shipper incurred a late delivery fine, layover costs for the truck, warehousing costs to store product temporarily, and re-delivery charges once an alternate appointment time was set. Total Cost of Mistake: $3,150
- CARRIER B contacted the shipper’s freight broker, who checked the documented notes in its system and confirmed, with the DC supervisor, that the load was scheduled for late Saturday delivery and had, in fact, arrived on time. After some back and forth, the load was classified as a “work in” to be unloaded that night. The extra costs were limited to some minimal driver wait time. Total Cost of Mistake: $200
The only difference between the two deliveries described was the choice of carrier. CARRIER A was the type that throws the problem back in your lap – “Sorry, not our fault. What should we do now?” CARRIER B was a more proactive freight broker that, in this case, saved the shipper almost $3,000 by taking ownership of solving the problem, even though they didn’t cause it.
Companies Don’t Measure the Cost of Shipping Mistakes
Despite the heavy financial toll of shipping mistakes, these impacts are rarely considered when choosing carriers. Why? Because these costs are not documented.
A freight manager might remember the “above and beyond” efforts of a carrier during a tough delivery, but that memory doesn’t make its way onto the spreadsheets and databases used for carrier evaluation. And neither do the costs that are avoided by working with a proactive freight partner. If your goal is to reduce freight costs, you need to understand that these are real costs that impact your bottom line, whether your freight department measures them or not.
What does get documented, from every conceivable angle, are freight rates. That’s why the most indifferent and least proactive carriers can become your preferred carriers – despite that fact that the 3-cents-per-mile they save you per load is far outweighed by the thousands of costs in costs linked to their indifference and poor service.
The real irony is that companies reward the freight manager who sources capacity for less, despite that fact that his choice of carriers might actually be eroding company profit.
To Reduce Freight Costs, Change Your Carrier Selection Process
Freight rates will always be important in carrier selection, and they should be. But shippers must understand that rates provide only part of the cost picture. A holistic selection process will look beyond the documented numbers and seek to engage genuine partners, not just haulers.
Freight shippers must find a way to assign a value to service excellence, proactive communication, and a problem-solving approach. If you don’t, then you’re underestimating the full financial impact of shipping mistakes on your company.