Bad routing decisions are expensive. Here’s how to always choose the right carrier.
Choosing a carrier is rarely as simple as it should be. This is because costs, transit times, and service differ from carrier to carrier. With so much focus on logistics costs and delivery times, the pressure has never been greater to make the correct routing decision. It all starts with calculating the rate accurately, which is not always easy — here’s how you do it.
Shipping costs have become more complex, and so have day-to-day routing decisions for most companies. Just as impacted is the average shipper’s ability to estimate costs and perform invoice audits. The process of understanding freight costs is much harder than it should be, and it’s created an expensive problem, whether companies know it or not.
The result of this complexity is that shippers lacking a process are forced to guestimate shipping costs most of the time — leaving them with poor cost visibility and control. And, worse yet, trusting that the carriers are charging them the correct amount.
It’s no accident that it’s so hard to calculate a shipping rate. Carriers know that when shippers are confused and rates are complicated, billing errors are overlooked. Sloppy routing decisions also get made because it’s hard to compare carrier rates. Carriers count on shippers making routing decisions out of habit or convenience when no objective rate comparison can be made.
This leads to the obvious problem of shippers sticking with carriers that are not the best option and logistics costs that are higher than they should be. When shippers cannot estimate shipping costs accurately, they end up with an unnecessarily expensive shipping spend.
It’s not just that calculating a rate is complicated. The chances are that a shipment’s final cost will change from the estimate once surcharges and accessorials are included. There are a lot of reasons this happens.
For one, rates are a moving target because they change. It takes a close look to understand the impact on any individual company of the annual UPS and FedEx GRIs, for example.
Carriers also have a lot of autonomy to add costs that often appear to be random or indiscriminately applied. This can include things like accessorials for special handling or other charges that are hard to catch and audit for manually. The carriers know this.
Compounding the challenge is that there are often blurry or ill-conceived rules of thumb regarding mode selection. When a shipment’s weight is near the threshold between small parcel and LTL, it’s a hard choice. Many companies have general guidelines based on “the way we’ve always done it,” rather than actual cost and service comparisons.
With no reliable way to estimate shipping costs on a macro or shipment-by-shipment basis, it’s understandable that doing their best guestimate on shipping costs and carrier selection is the default process for some companies.
Clearly, this is not the right approach. The only solution to this problem is a reliable process for managing carrier rates while getting accurate cost estimates for shipments in real time — and auditing invoices after the fact. This is only possible with technology, because these are calculations and decisions that must be made quickly and in line with logistics operations.
Shippers can’t afford to be lazy and always make the easy choice when it comes to carrier selection. The cost and service impact is too great. Creating a process that enables accurate rate calculations is integral to an optimized shipping operation and directly impacts every company’s profitability.
Visit TransImpact to learn about how our SaaS+ methodology can improve and optimize your parcel operations via industry-leading BI technology paired with industry expertise.