By Tony Nuzio - Guest Blogger
Founder/CEO, ICC Logistics Services, Inc.
For years now the transportation industry has been using the "Retail Sell" to attract customers. Do you know what we mean by the "Retail Sell?" Does this sound familiar?
"Buy 1 at regular price and get two free!" Or on the TV Infomercials "But wait, if you order within the next 10 minutes we'll double your order at no additional cost, just pay the additional shipping and handling charges!" These are just two examples of how we, as consumers, are constantly being bombarded by the "Retail Sell." The "Retail Sell" attempts to convince the buyer they are receiving a great deal and not to pass it up.
Well, not much is different for transportation service providers who use their version of the "Retail Sell", (which we call the "Discount Game"), to attract their customers. Today, it's not uncommon for shippers to be receiving discounts in the high 80% range. Wow, that's impressive ….maybe.
You see if the carriers are offering discounts at these high percentages, one has to question just how high are the base rates their carriers are discounting. How else can these carriers afford to offer these huge discounts? Unfortunately, many shippers just accept these discounts as being a great deal for their company and the truth is; they very well may be, but wait, there's more.
There is much more shippers should be doing to make sure they fully understand what their actual discounts are and, more importantly, what they should be. There are several reasons for this:
- Most shippers are not aware of the fact that each carrier publishes their own base rates to meet their individual revenue needs. So comparing discounts from one carrier to another carrier is of no use. And, shifting business to a carrier with a higher discount, may actually cost the shipper more money in the long run.
- Secondly, each carrier establishes their own fuel surcharge percentages to again meet their individual financial needs. In fact, some carriers add the fuel surcharge to the gross rate, (before the discount is deducted) and some add the fuel surcharge to the net rate, (after the discount has been deducted) these calculations can result in a huge difference. And, carriers also begin to assess the Fuel Surcharge at different Diesel Fuel Price per Gallon points.
- In addition, each carrier establishes their own Accessorial Fees for the ancillary services they provide. Again, the differences in these fees from carrier to carrier can be significant.
So how can a shipper be sure they are getting "The Best Deal" for their company? The only true way is to benchmark their rates against the competing carriers in their respective service areas. Shippers can attempt to do this by creating Requests for Proposals from competing carriers to see how each carrier's rates stack up against the competition. But this too may leave the shipper wondering, do they really have the "Best in Class" rates for their specific business.
To properly perform this analysis, shippers really need to work with transportation and logistics consultants and freight invoice auditors who have extensive knowledge of carriers' pricing structures. Firms that maintain huge data bases of carrier rates and fees that can provide the shipper with a comprehensive benchmarking analysis to ensure they obtain the lowest possible rates for the services they require to run their business. An actual case in point is a manufacturing client of ours that had a pricing agreement that provided a 78% discount for all of their LTL shipments. After we assisted our client in re-negotiating their LTL contract, the manufacturer's LTL freight costs were reduced by a whopping 50% utilizing the same LTL carrier the manufacturer had been using for several years. The client could not obtain "Best in Class" rates on their own; they needed our expertise to get them there.
One final point; a shipper should NEVER sacrifice service for lower rates. If the carrier(s) cannot provide the service the shipper requires, they should not be part of any benchmarking analysis. This is another critical area the transportation and logistics consultant can assist the shipper with. An extremely valuable service they may not be able to obtain on their own.
Please take a moment to check out ICC's Blog @ http://www.logisticsstrategies.com to check out previous articles.
Reprinted from ICC Logistics Services, Inc.with permission.
Photo credit: Thomas Hawk