A recent White Paper published by Transwide and Supply Chain Media provided a checklist for shippers to use to ensure they have their transportation spend under control. This is a very thought provoking list that every shipper, large or small should keep handy. You can download it here.
We’re not sure the authors intended to put these checklist points into any specific order of importance however, we do believe the first point on the checklist is the most critical one for all shippers. “We have the processes and capabilities to benchmark rates against a broader network than just our current providers on a daily basis.”
In order to be sure a company is receiving the “Best Deal” from its transportation and logistics service providers it must have the ability to benchmark their current services and pricing against a much larger and broader group of equally qualified service providers. The reality is that what may be a “Best Deal” for one company may be a terrible deal for another.
For example, some shippers are currently receiving discounts and incentives which are in the 90% range. While that may seem like the “Best Deal” at least price wise, it probably isn’t. Most of these discounts and incentives are being offered off of the carrier’s current, so-called List Rates. In many cases the “List Rates” have been inflated and that’s precisely why these carriers can afford to offer these 90% discounts. It’s what we call “The Retail Sell.”
What is the retail sell, you ask? The retail sell is when you see a sale off of the “Original Selling Price” of an article typically in a retail store. Those original costs are marked up, so they can be marked down to entice the buyer into thinking they got a great deal. The reality is the best deal is not necessarily the deal with the largest discount, (as some logistics and financial executives falsely believe); it is ALWAYS the deal that ensures the shipper is receiving the most competitive rate “for the services being offered by the most capable service providers.” Notice we didn’t say the “Lowest Rate” or “Cheapest Rate.”
So how does a shipper obtain the benchmarking information they need to perform these analyses? Most shippers do not have the ability to benchmark their rates against many other competing transportation and logistics service providers. The good news however is that there are firms who specialize in these services and monitor the markets closely on a daily basis. Transportation and logistics prices change on a daily basis. Shippers need to continually monitor their expenditures on a consistent basis to make sure their company receives the best combination of service and cost. Yes, these two characteristics, service and cost must be considered before entering into any long-term service agreements.
We urge all shippers to seek advice from the transportation and logistics consulting firms who specialize in benchmarking rates for all transportation modes and all levels of service. In some cases shippers may even benefit by changing modes of transportation, such as consolidating and moving parcel shipments to LTL; moving LTL shipments into partial truckload shipments, etc. So having an expert help you assess, benchmark and “Target Price” your business to make sure your company receives the “Best Deal” today and into the future will pay huge dividends.
We complement Transwide and Supply Chain Media for publishing this Checklist and we will continue to comment item by item in our future posts.