Controlling Freight Costs
Today as gas prices go to $3.30 a gallon and beyond, the cost of shipping is going up also. Freight surcharges on our truck shipments are now at 20%. Whether I think its fair or not (and you can probably tell I think the surcharges are high because while fuel is up, the cost of their trucks, terminal and people have not gone up), all the carriers are doing it. We have taken a lot of efforts in the past year to bring the cost of shipping down to remain competitive and we have been pretty successful at doing so.
The steps we have taken include using deferred and consolidated services, identifying carriers which specialize in either a location or type of service, increasing our pruchase levels to gain free shipping, and just plain old negotiation. Being small, our leverage may not seem to be great, but if you can educate yourself you can find a good amount to save. And freight is imporatnt, after materials and salaries, it is our third largest expense category.
There are freight consolidators who pick up freight locally and take it to another trucking company (interline service) in another part of the US for delivery. They like to have full skids (that is skids which are 6-7 feet high) and for those type of shipments, they are 15 to 20 percent less expensive than traditional long-haul carriers. For minimum type shipments (i.e. under 200 pounds) the shipping consolidator will not save us money.
We also have the opportunity to use carriers who like to go to a specific region. This includes firms who specialize in going to New York City or we have a similar arrangement with a firm who goes to the Carolinas.
Deferred services usually add 2-3 days to the transit time. In return, you can save 30% of the shipping charge. This is available for cross country shipping. What we have done on shipments accross the country is to expedite our shipping of those orders so that we can use deferred shipping and the product arrives at our customer with our usual leadtime.
We have negotiated standardized freight programs (known as FAKs) and tried to minimize special charges such as single pickups, government and elevated tailgate services. We tend to focus on those services we experience a demand for and negotiate to have all of carriers standardize on the fees they charge for those sevrices.
Finally, there is just plain old negotiating for discounts. We talked with some big people to see what they got and while we coldn’t expect to match everything, it gave us some good benchmarks.
It’s all about being as efficient and lowest cost as you can be. So while we have made shipping a little more complex, we have reduced our shipping costs 15 to 20 percent from a year ago which helps us hold our prices steady. I did not think we were doing a bad job, but there was significant room for improvement (and I am sure there are other savings opportunities too).
While we are in the sign and display business, shipping charges can often be over 20% of an invoice. So while we face competitors who want to add a fuel surcharge or raise minimum orders, we have been able to hold the line and keep the total delivered cost in line. And the improvement helps us to be more competitive and grow our business.