Many shippers tend to consider conducting a freight tender as a relatively simple process and that all you need to do is a get a quote from a carrier and choose the cheapest. A simple comparison of item rate or cents per kilo rate between two or three carriers to the same destination and pick the lowest; easy.
Like anything in life, however, the details matter and like all endeavours, those that have studied the sector and made a living from it, build experience and expertise that generally bring about superior results than a simple carrier to carrier rate comparison.
Freight Tender Mistakes
Example 1 – not checking contract details
A typical mistake we’ve noticed has caught shippers out with a freight tender is a failure to properly assess all the contract details when implementing with new carriers. For example, when trying to streamline carriers (based on criteria such as cost savings and performance), organisations can sometimes forget to check when a carrier’s general rates increase might impact. Sometimes this might come into effect shortly after the freight tender has been completed. This then leads to the shipper underestimating the cost benefits of choosing one carrier over another. Instead of their freight costs going down post review, (a high criterion for most if not all reviews), the prices have trended upward shortly after the carrier change over, (or increase in freight volume assignation), has occurred.
Had they checked this prior to the completion of the freight tender process they could have negotiated to postpone that general rate increase for the year, or if unsuccessful, factored that in to the freight cost comparison with the other carriers in the freight tender process and made a different choice, one that ensured they achieved the best rates overall; and therefore most competitive distribution solution.
Example 2 – timing of carrier transition
Some shippers make mistakes when informing the incumbent carrier(s) that they would not be moving forward with their offer. For example, when IT issues occur with integrating with the new preferred carrier has meant that the shipper was unable to switch to the chosen carrier months after the decision was communicated. As a result, the unsuccessful carrier may sometimes choose to give the company a price increase.
If this mistake is compounded with the above mistake of not securing a waiver from a general rate increase that has a close start date to the carrier implementation, then with these two separate actions of two carriers – the chosen carrier and incumbent – the company will receive multiple price increases from both carriers.
Obviously when these ‘double whammy’ issues occur, the projected price reductions that were the goal of the freight tender fail to appear, and in fact, sometimes shippers will see their freight invoices increase post the review.
Example 3 – inability to independently assess freight rates’ impact on freight costs
Some shippers think that they had a good understanding of who the most economical carrier is, but when we’ve explored this with them, often there is little evidence to support their belief. This has sometimes been a springboard to enabling us to do the fact gathering on their behalf. Often the savings they thought were there, did not exist. In fact, sometimes they were going to end up paying more, (for the same volume and type of freight activity), moving forward!
For example, a shipper that approved our assessment of their recent freight review via our Carrier Check system had thought that it had achieved a 11% decrease in their freight costs. This figure was correct, but only in one of the services covered by the carrier. In other services the increase in costs led to an overall increase across the various modes of distribution that were part of the new carrier’s offering.
Having demonstrated that the savings was not there through an initial analysis via our Carrier Check system, the company in question let us conduct a second separate freight tender, and from that implemented with carriers they had never considered working with and saved 15% on their overall costs. This saving came from a combination of our niche internal systems such as Carrier Check, and our client-based TMS system, along with our consultants’ carrier network expertise.
Example 4 – not properly assessing freight rate charges
Sometimes Logistics Managers appoint a new carrier, and find, as per the other examples, that freight prices are trending upward rather than downward as expected. This is because they have made assumptions about the freight rates & contract, or not read them carefully enough. Really, this is beyond a person to perfect and needs algorithms within a niche system to highlight issues within the data.
Some of these shippers have turned to us upon realising there is a problem, to ask for some assistance in auditing their freight to uncover why this was happening.
In one such example we uncovered that the invoices were correct to the rate cards that had been accepted by the company; the problem didn’t lie with the invoices having a high level of errors. Rather it was because of a difference between the previous carrier and the new in their zoning practices.
The new carrier had placed their postcode sender location in an Outer Metro Zone whereas the previous carrier had placed them in the Metro Zone of their shipping location city. The customer had merely compared the cents per kilo to locations from the city sending locations and saw the new carrier had priced that Ex City location at a lower rate. But crucially for them, it was the wrong Ex location with which to make the comparison. Our Carrier Check system quickly picked up on the error, and we assisted them with a rebate process from the new carrier.
Having proved our capabilities with this freight auditing project, the company went on to use our services for their next freight tender. The customer was happy with the outcome which included improved performance, improved transit times and modes, and substantial freight cost reductions with the new rates moving forward.
The Benefits of Outsourcing your Freight Tender
These mistakes may seem simple and easily avoided after the fact but they are actually quite common when several people in the organisation are dealing with freight and something slips through the cracks.
When internal stake holders also have their regular daily work tasks to perform and a review is added to this, (without a reduction elsewhere), it is easy to see how simple errors can occur.
Review by spreadsheet analysis rather than taking advantage of the best systems that freight specialists can offer, and sometimes simply accepting the carrier’s assertions on expected freight cost reductions, adds to the potential errors of the internal review process.
Just like having an experienced solicitor or accountant, using an experienced consultant, that has decades of experience with freight management and related software systems, allows you to draw on that expertise and experience to avoid mistakes before they happen.
The irony is that, often in setting out to avoid paying for a consultant, born of a belief that reviews are straightforward and simple, it can end up costing a whole lot more. Freight is just like any other endeavour; using an expert will allow you to avoid costly mistakes and should allow for a solid return on your investment.
These are but a few examples of the types of costly mistakes that can happen when you take a DIY approach to a review of your freight. Most of the freight reviews we conduct ion the behalf of our customers, (after an initial examination of the requirements), are conducted by us for free and the customer is under no obligation to implement our findings. In some cases, a prior fee for service was already in place because the customer was using our other analytical services such as our Freight Auditing solutions.
But in all cases, using our services has provided a compelling Return On Investment (ROI), and is more cost effective, with a better tailored distribution solution, and with predictive modelling, providing higher level of accuracy on outcomes than an internally managed freight tender.
So, please feel free to contact us for a consultation meeting on your freight tender or freight audit project; you’ve got nothing to lose and a great deal to be gained.