Freight Rates – A Nightmare to Manage?March 3, 2015
By Tony Nuzio – Guest Blogger
Founder/CEO, ICC Logistics Services, Inc.
In today’s very competitive domestic trucking environment, shippers are being deluged with a variety of pricing options, including varying base rates, varying discounts, numerous accessorial fees and scaled fuel surcharges. So how does a shipper know if he’s getting a good deal or a bad deal?
The proliferation of individual carrier base rate structures, which vary from carrier to carrier, is the primary reason shippers have a difficult time assessing whether the rates their carriers are charging are the best available rates in the marketplace. In fact, many carriers use inflated base rates and high discount levels to lure shippers to utilize their services.
The shipper obviously has an obligation to analyze the various motor carrier price offerings to determine which carrier or carriers can provide the best service at the most economical cost. In one analytical study we recently performed for a shipper client who received bids from five different motor carriers we compared the individual carrier rate structures against a “standard” freight rate structure to see which carriers’ rates actually produced the lowest net freight charges.
The discounts the client received ranged from a low of 70% to a high of 85%. When we compared the individual rate structures against the “standard” freight rate structure we found the following percentage differences between the “standard” freight rate structure and the individual carrier freight rate structures.
Carrier A 20% higher than the standard base rate
Carrier B 42% higher than the standard base rate
Carrier C 1% higher than the standard base rate
Carrier D 10% higher than the standard base rate
Carrier E 6% lower than the standard base rate
What this analysis clearly pointed out was that the discount offered by the individual motor carriers was meaningless when it came to measuring the net rate the shipper would actually end up paying.
To solve the problem we recommended that the client enter into Transportation Contracts and require their carriers to utilize the standard rate structure as the base rate level for all carriers. The individual carriers would then discount their rates from the standard base rate level and the shipper would then know which carrier had the most competitive rate for their various shipping lanes.
In addition we recommended that the carrier’s cap their annual General Rate Increase not to exceed 3% and also provided a standard Fuel Surcharge Table that all the carriers would utilize.
It is clear to us that many shippers are being lulled into a false sense of security that discounts which now are in the 80+% range mean that shippers have finally taken control of their domestic motor carrier transportation expenses; this is certainly not the case. The fact is that many shippers lack the technical expertise to perform these rate analytical studies. In addition they certainly do not have access to competitive rate structures to make a proper determination as to what rates, discounts and ancillary charges will actually yield the most competitive rates.
Shippers requiring this assistance should seek out help from transportation and logistics consultants to help them perform these very important benchmarking analyses. The results will pay off handsomely.
Reprinted from ICC Logistics Services, Inc. with permission.