Savvy biz owners are cutting freight costs while everyone else is worrying about tariffs
Over the past five years, the cost of freight has fluctuated significantly.
(This column originally appeared in the Inquirer)
There’s been a lot of attention paid to rising tariffs over the past few months and how they’ll impact inflation. But there’s also another important cost that figures significantly into the price of products: freight.
Over the past five years, the cost of freight has fluctuated significantly.
For example, the price of general freight trucking services increased 57% from mid-2020 through mid-2022 before falling to 25% in June, according to the Bureau of Labor Statistics (BLS). Deep sea freight costs increased about 60% during this same period and are still almost 50% higher than they were during the pandemic, according to BLS.
This kind of volatility makes it very difficult for many businesses to price their products.
Destiny Rykard, the founder and CEO of Destiny Way Logistics in Wilmington, has seen the cost for freight and logistics change significantly during this period.
“It’s just been fluctuating due to several reasons like the pandemic, supply chain disruptions, technological and policy changes, as well as geopolitical and economic factors,” she said.
Managing freight costs is not only a challenge for many businesses, but it is important because freight can add as much as 10% to 25% to the price of an item. In these days of higher tariffs, every penny is critical. Here’s some advice for mitigating these costs.
Consolidate
For starters, it’s important to consolidate shipments when possible to reduce the costs of handling and emissions. By combining shipments into fewer, larger amounts there will not only be less labor but a reduction in carbon footprint and a potential reduction in the risk of loss or damage. A good logistics partner will help do this.
“Our technology will automatically look to consolidate freight,” said Joseph McDevitt, a director of marketing and business development at TLI, a freight broker based in Exton. “If it says, ‘Hey, you’re shipping from the same vendor on a shipment on the same day of the week,’ it’ll force us to consolidate it. It’s important to have vendor accountability on their entire inbound supply chain. … They’ve got full visibility and full control over what’s going on with the technology.”
Establish good partnerships
It’s important to leverage your carrier relationship and constantly negotiate rates. Having clear tracking and full visibility into inbound and outbound shipments improves decision-making and helps identify bottlenecks. McDevitt says a good strategic partnership can formalize rate negotiations, stabilize the prices you’ll pay, and lower longer-term costs.
“We do a lot of sourcing of proposals and requests for proposals with shippers on behalf of our customers,” he said. “Customers who really want to get good rates will do their best to lock them for the long term.”
Rykard agrees.
“One of the most important things is the strategic partnership and negotiating rates on behalf of my customers,” she said. “But there are other things to consider besides just costs. The market is volatile and we have to be cautious of chasing temporary rate drops without considering service reliability or longer-term stability.”
Lean into tech
It’s also critical to embrace technology and lean into AI solutions as they develop.
“The number-one thing in terms of how we’re minimizing costs is using technology — specifically what’s called a ‘transportation management system,’” said McDevitt. “We have artificial intelligence to audit the invoice the carrier sends out and if it fails the audit, then it goes into a separate workflow for evaluation.”
McDevitt and other experts say that the best logistics companies rely on advanced software to find better pricing and to help with planning and visibility of route options. AI is now becoming an important way to do better auditing of freight costs and forecast.
“If you can get as much data as you can, you can make sure that you’re calling for the right price,” said Ted Kuriger, co-founder of Jillamy Inc., a logistics firm based in Chalfont. “Technology is definitely helping us and a lot of it is just data driven. AI can optimize demand planning, automate invoice audits, and catch billing errors before they affect your bottom line.”
Rykard agrees and says that AI’s biggest impact is on supply chain demand forecasting, route optimization, automation, and robotics.
“Technology plays a crucial role in minimizing the shipping costs and optimization logistics operations,” she said. ”Several of the technologies [that have] been helpful for me is AI and machine learning as well as automation and robotics, and cloud computing.”
Plan
Finally, it’s always critical to plan as much as possible. Failing to adapt quickly can lead to inefficient operations and higher costs.
“There’s a million different ways to get your load from Philadelphia to Chicago, whether you put it on the rail or put it on the truck or consolidate it,” said Kuriger. “By planning effectively, companies and their logistics partners can evaluate all the options and make the right choice.”
Rykard says that lack of planning can create many headaches, and her best customers are always thinking weeks or even months ahead.
“Poor demand forecasting, inefficient route planning, lack of visibility and tracking, inadequate inventory management … all of these things can lead to increased costs and shipment delays.”
