Are your shipping costs breaking your bottom line? Discover how to reduce transit times, increase margins, and boost customer satisfaction. We have compiled the following tips below to help your company save money:
1 – Choose the Optimal Mode of Transportation
Companies and commodities are not created the same. This is also true for best shipping practices. Simply because a successful business uses a specific method of transportation to ship their products does not mean the same methods will translate into success for your company. For example, many companies offer next-day shipping but this practice is not realistic for other companies. Here is a list of available transportation modes:
- Over-the-Road Trucking
- Ocean Vessel
- Air Shipment
- Rail Shipment
The first way to save a significant amount of money is to learn about your products and determine the best methods of transportation. Once you have a good primary and secondary action plan, you will be able to begin looking into more avenues to cut costs.
2 – Know your INCOTERMS
Using INCOTERMS is essential for freight savings. You should negotiate them during the sale of goods. Importers and exporters lose a lot of money because they do not understand the difference between all INCOTERMS. Here are a few examples of possible terms:
- Ex-Works (EXW)
- Free Carrier (FCA)
- Carriage Paid To (CPT)
- Carriage and Insurance Paid To (CIP)
- Free on Board (FOB)
- Cost, Insurance and Freight (CIF)
- Cost and Freight (CFR)
- Free Alongside Ship (FAS)
- Delivered at Frontier (DAF)
- Delivered Duty Unpaid (DDU)
- Delivered Duty Paid (DDP)
- Delivered Ex-Ship (DES)
- Delivered Ex-Quay (DEQ)
Each INCOTERM is quite similar and the varying degrees of responsibility are often small. The agreed-upon term will determine which party is responsible for damages and loss during each portion of the shipment. It will also determine who is responsible for insurance at any given point in transit. Study your INCOTERMS and understand them completely before you sign any sales contracts.
3 – Perform Due Diligence
It is important to understand that going with the cheapest carrier is not the best way to save money. Consider Pareto’s Principle, also known as the 80-20 Rule. This states that 80 percent of your sales will come from 20 percent of your client portfolio. Customer loyalty is the key indicator in long-term success. Choosing an inexpensive carrier will not lead to customer satisfaction and repeat business.
This is not to say that you should select a premium carrier that will lose you money on sales to provide over-the-top delivery services. Find a balance. Once you find the right partnerships, you will be able to negotiate better pricing in the lanes you use and perhaps pay a little bit more for lanes you rarely use. Also, do not forget about using less-than-container load (LCL) and less-than-truckload (LTL) shipments. Consolidating your shipments with third parties is often an extraordinary way to cut costs.
4 – Negotiate and Network
Use your potential shipments as leverage. If you have more than one location, do not forget to include all the potential future business as a way to reduce lane rates. Also, you should use several different partners in each mode of transportation. It is important to have strong relationships with several partners because there will be a time when your preferred partners will not have any trucks, flights, or space on a vessel for your exact needs. It is critical to always expect the unexpected and that few shipments ever go according to plan.
Establish an extensive, solid, and trustworthy network and this will save you thousands in the end. Even if you only use a specific carrier a few times a month or year, you will know that they will take care of your needs.
To ensure this process is successful, take meetings. Many people in the freight shipping business rarely have time to eat let alone to take the time to sit down with new carriers. Take the time to do so. It is essential to expand your transportation network. Always be polite, calm, rational, respectful, and honest. This will ensure that your business, and in turn your clients, will be well taken care of at all times, not only when times are good.
5 – Invest in Proper Training and Hiring
Hiring the wrong person can be detrimental to any business regardless of its size. According to the Harvard Business Review, bad hiring accounts for 80 percent of all employee turnovers. It is also believed that the average company spends thousands of dollars in training and hiring for just one position. You want a person who is qualified, but you also want a person who fits in with the culture and your team. Hiring a conflicting personality can be just as bad for business as hiring someone who not qualified.
Some of the best traits to look for in individuals who wish to work in shipping are as follows:
- Willing to learn
- Ability to multi-task
- Pays attention to detail
- Positive attitude
- Works well under pressure and with deadlines
- Strong in geography
You must also invest in the continued education and training of your employees. The world of international shipping changes every day. If people are unaware of new country regulations, updated port requirements, and customs compliance, a company could lose millions of dollars rather than a few thousand in training expenses.
Encourage and pay for certification renewals and relevant seminars to lower freight charges. Remember that this process will often take months rather than weeks. Consider cross-training extra team members in the office so that you never hire out of necessity. Trained backups, detailed job manuals, a current resume or cv database, and contingency plans will save you a significant of time, stress, and money when you find yourself in urgent need of an employee.
6 – Analyze Routes and Methodologies
You should know your shipping lanes and routes. It is best to keep track of each shipment you make every day. Track all data for each shipment such as:
- Origin and destination
- Freight charges
- Mode of transportation
- Transit time
- Date of departure
- Estimated date of arrival
- Actual date of arrival
- Tracking numbers
- And, any other pertinent information
You will be able to analyze all aspects of your shipping costs and create metrics to present to your partners in regards to their performance and pricing. You will be able to know which carriers are providing the best on-time deliveries in each route. You will be able to view which carriers to contact for specific routes and types of shipments such as LTL or truckload (TL).
You will be able to determine your daily, weekly, and monthly freight charges. This will determine whether you need to select a new method of transport based on average delivery times and costs. You should always add notes to each shipment about any special circumstance such as a blizzard in the mountains, loading delays, ocean vessel delays, extra customs detention charges, etc.
Each shipment is unique and unique circumstances occur on a daily basis in this business. If you do not have the budget to spend on sophisticated software or applications, a spreadsheet will do the same job. This process may take time to establish, but once it becomes a daily best practice, it will save you time and money in the end.
7 – Fill Customs Documentation Carefully
Be meticulous about your customs documentation as this should be one of your best practices for saving money. One error may result in hundreds of thousands of dollars in demurrage and detention fees. Why? Each shipment has a number of free days inside the port. After this time, the charges start to accumulate between the port charges, forwarder charges, carrier charges, reefer container and much more.
You may encounter corrupt customs officials in certain countries. You need to regard your customs documentation as if it was worth the cost of the sale. Keep records of all emails and get everything in writing. Try to keep your client involved at all times throughout the process, particularly once the shipment arrives in their country. As a local resident, they will have more influence over local authorities than you will.
8 – Track Each Shipment
Just because a shipment is no longer in your control does not mean you should stop monitoring it. It is quite easy to forget about a shipment once it becomes in-transit. The idea that the shipment is in motion often leaves people with a false sense of security. This is far from the case. You should expect any number of issues along the way to save money on freight expenses. The following are a few examples of potential unforeseen problems that add freight charges:
- You are to receive an air shipment. The website for the shipment shows the freight as delivered so you put the file away and rest easy. Later, someone in your office comes looking for the shipment claiming that they have not seen the order. You check and the signed air waybill displayed is for another customer and another shipment. While online data is convenient, it is not always accurate. Always check with an actual person to be sure your shipment has reached its final destination.
- A truck picked up a time-sensitive shipment to be transported to a port. Your trusted forwarder assures you that they will contact you if any issues arise along the way. Days pass and you do not hear anything, so you presume everything is OK.
- Time pass and you realize you have not received your ocean bill of ladings. You contact the carrier and discover the driver did not have the proper port entry identification so they dropped the shipment in a yard, and they are still waiting for an eligible driver to complete the move. By this time, you have missed the ship and your deadline. Always follow up on each stage of an intermodal shipment. The more people involved in a shipment the more communication can breakdown. Do not rely on others to inform you of problems. Be proactive.
Problems will arise along the way. The best way to save money on freight is to be proactive rather than reactive. Keep a detailed shipment calendar. Mark important dates to follow up on such as truck pickup and delivery dates, days shipments are to arrive and pick up at port, vessel departure and arrival dates, etc. The more you know about each shipment, the less money it will cost you in the end.
9 – Consider Third-Party Logistics (3PL) Services
Consider using 3PL services to reduce your freight costs. These companies can receive your shipments from vendors, repackage the items for delivery and arrange for the transportation. The results of using such services are often lower logistics costs, improved customer satisfaction, and reduced transit times. Such businesses hire experts in their respective fields and provide integrated software so that you are able to see progress in real time and relay such information on to your valued customers.
Choosing to use a freight forwarder rather than to work with the ocean lines is also another advantage. These businesses are able to generate large savings,by negotiating rates with ocean lines based on all their shipments from all their clients.
While 3PL services offer many advantages, it is important to note the potential disadvantages as well. You lose control of your goods and logistics at times. You also risk losing your competitive advantage by sharing too much information with a provider. They may accidentally share confidential information with another client costing you an edge in the marketplace. Hiring a 3PL ishelpful to the vast majority who choose to use these services.
10 – Communicate
A breakdown in communication will cripple your logistics and increase your freight charges. Whether you are importing or exporting, consider all the movements in your supply chain. This must work to make a shipment possible such as the importation of pieces and parts to complete a finished good and the exportation of a finished good to the end user.
You should also treat your internal team as customers as they are as important in the process. Everyone in the supply chain is essential from the people who make the products to the ones loading them. Establish a positive working relationships with your entire team as this will improve your efficiency and reduce freight charges.
Work with others to track inventory levels to ensure parts are ordered on time. Speak with procurement and sourcing on occasion to know of any supplier changes that may affect the supply chain. Follow up with the sales team to ensure contacts have not changed. Speak with finance and accounting about letters of credit. Visit the floor to learn how the product is made and loaded. Being visible and vocal should be part of your best practices. Update the management when a disaster occurs so that they are able to speak with the customers.
Saving money on freight is not difficult. If you take the time to know your goods, evaluate your options, negotiate your rates, establish positive relationships, monitor each movement, and establish a well-trained team, you will save freight costs to pass along to your customers.