We give you 18 important tips on how to reduce your freight costs very fast. Even by applying a few of these tips, you can save a lot of time and money, because saving money on freight is not difficult.
If you take the time to know your goods, INCOTERMS, transportation options, transportation market trends, and your team, you will save freight costs that you can pass on to your customers. Ultimately, both you and your customers will benefit.
Transportation costs can have a significant impact on profitability and growth. Managing transportation costs can be somewhat complex for many businesses. Although it pays to plan for cost spikes, the best strategy for reducing the financial burden of transporting your inventory is to reduce freight costs on a day-to-day basis.
Table of Contents
Reduce the amount of filling (dunnage) used in packing your products
Many shipping boxes must be padded to prevent products from being damaged during a truck ride. However, sometimes shippers overdo it in their efforts to protect a product. Consider investing in the development of a minimalistic packaging design that does not use a large amount of padding.
Minimal packaging helps reduce material consumption, which leads to lower product costs. In fact, minimalistic design also leads to lower handling costs, packaging costs and transportation costs. All the little things contribute to a reduction in carbon emissions.
Many carriers use dimensional weight pricing strategies, in which the carriers reward shippers for shipping in just the right size box, which reduces box weight and stowage. In short, packing freight more efficiently is one of the easiest ways to cut costs.
The amount of space used is a major factor when defining the freight rates. Therefore, reducing dead space will almost always result in lower rates.
Save on freight costs by shipping less frequently
Avoid shipping small quantities at short intervals in order to reduce your freight costs. Bulk shipping is generally cheaper than shipping the same amount of product in multiple, smaller shipments.
Bulk customers get cheaper rates because carriers can load a vehicle more efficiently. Less time is required because the carrier does not have to load and unload multiple times.
The other side of the coin is that when shipping in bulk, your customers must maintain a larger inventory than they need immediately. This incurs inventory costs, so a small price reduction or other favourable terms may be necessary.
In summary, it’s good to know your products, inventory levels, production lead time, and transportation lead time. Based on this knowledge, you can make much better decisions. For example, with high production and transport lead times, you will generally need more safety stock. Also, read how Material Requirements Planning (MRP) can help you save freight costs.
Avoid being charged for additional waiting hours during pickup or delivery
When carriers set their prices, they usually assume a short loading window, depending on the loading meters. But if the carrier knows it has to pick up at a place where the load will be loaded without a problem, then that can affect the price. It also encourages the carrier to work with that shipper. Shippers with consistent load time performance may even have those convenient load times discounted in the rate. In short, carriers can charge extra for the additional waiting hours. On average, this is what you can expect in the transportation market:
1-2 pallets – 20 minutes is the standard waiting time
3-10 pallets – 30 minutes is the standard waiting time
11-22 pallets – 45 minutes is the standard waiting time
23-33 pallets – 60 minutes is the standard waiting time
Create more flexibility in pickup and delivery time windows
If you are not time-constrained, it always pays to give carriers a larger time window for picking up and delivering your goods.
With a larger time window, carriers can better execute their schedules and ensure that they drive less empty. For example, a carrier may reject a load to be picked up because it conflicts with another trip.
However, a later pickup allows him to make the delivery and fill his backhaul with your freight. This is just one more way to help the carrier make the best use of his assets.
Cargors takes this even one step further and advises reloads to carriers so that they can really reduce driving empty.
Use INCOTERMS to reduce your freight costs and risks
The use of INCOTERMS is critical for reducing your freight costs. You need to negotiate with them during the sale of goods. Importers and exporters lose a lot of money because they do not understand the difference between all the INCOTERMS.
When you use INCOTERMS to organize a freight shipment, you should always specify that you are using them and which version. The new updated INCOTERMS, valid from 2020, are applied to any contract signed including and after January 1, 2020.
Here are a few examples of possible INCOTERMS:
INCOTERMS for all type of transport
Free Carrier (FCA)
Carriage Paid To (CPT)
Carriage and Insurance Paid To (CIP)
Delivered at place (DAP)
Delivered Duty Paid (DDP)
Delivered at place unloaded (DPU)
INCOTERMS for sea shipping
Free on Board (FOB)
Cost, Insurance and Freight (CIF)
Cost and Freight (CFR)
Free Alongside Ship (FAS)
The agreed-upon term will determine which party is responsible for damages and loss during each portion of the shipment. It will also determine who is responsible for insurance at any given point in transit. Study your INCOTERMS and understand them completely before you sign any sales contracts. In short, the INCOTERMS define the following:
- How, when, and where the load will be picked up
- The type of transportation
- Who takes the risks and costs of transport and at which point
- The part responsible for paying the import or export duties
Track each shipment proactively to avoid delays in shipment pickup and delivery
Make sure you are proactively tracking your shipments. Logistics coordinators often forget about a shipment as soon as it is scheduled or in transit.
The idea that the shipment is on its way often gives people a false sense of security. However, this is far from the case. You need to consider a number of problems along the way to save money on freight costs. Here are some examples of potential unforeseen problems that can suddenly increase your freight costs:
- Missing customs clearance documents.
- Incorrect information on packing lists.
- Incorrect reference numbers for loading and unloading.
- Inventory not being updated because of wrong EAN codes
The number of problems that can occur is infinite. The only way to avoid problems is to be prepared well in advance of the transport and be proactive when picking up the cargo. A lot of time is lost in this and that’s why a platform like Cargors can really help make it easier.
In summary, don’t rely on others to inform you about transportation issues. Be proactive. Issues will pop up along the way and you need to find a way to manage all the shipments you have.
By using Cargors you can view all your active shipments, upcoming shipments, status of shipments, shipments with problems and shipment related documents.
Avoid shipping when there is a high demand for shipping
To reduce freight costs, it is essential to understand the transportation market. Be proactive and manage your transportation in advance so you don’t have to pay the extra cost. While each product and industry is a bit different, you can save a large amount of money by managing the following:
- Make sure you have enough stock for Christmas.
Transportation is always much more expensive during the Christmas season.
- Make sure you don’t schedule critical transportation at the end of the year.
It generally takes much longer to deliver your goods at the end of the year due to holidays.
Shipping off-peak can result in significant savings. Backhaul shipping, where carriers try to fill empty trucks on their way back to base, can further reduce costs.
Make sure you have the right transport insurance
The AVC conditions are used for transport within the Netherlands. AVC stands for “Algemene Vervoerscondities”. The liability of the carrier is limited to a maximum of € 3.40 per kilogram of transported weight.
The CMR Convention applies to cross-border transport within Europe. This Treaty is also based on a payment per kilogram of weight. The fee is 8.33 SDR (Special Drawing Rights). An SDR fluctuates and depends on multiple factors. Currently the price fluctuates around € 9.50 / € 10.00 per kilogram transported weight.
Many carriers are unclear about these rules. Depending on the cargo transported, the AVC or CMR conditions may not provide sufficient cover. The cargo is fully insured by means of goods transport insurance. This insurance cannot be arranged by a carrier and must be arranged by the owner of the goods.
The right insurance is needed to protect you from a lost or damaged load. Research thoroughly which insurance is right for you. Most likely, these policies will have premiums and deductibles that may seem expensive at first, but if the cost is spread over a high value of the cargo, then it could be very reasonable for the risk.
Involve logistics earlier in product design, packaging, and carton selection
Most companies just don’t think about optimizing packaging and its impact on freight rates. In the early stages (of developing a new product), the packaging seems very inexpensive compared to the overall cost.
Don’t be fooled by this, because inefficient packaging can lead to higher transportation costs, higher handling costs and higher storage costs. Per-order costs may be low and manageable.
However, always look at the long term when trying to reduce transportation costs. A good manager always looks at the total opportunity.
Don’t limit yourself to contracted prices and look for less-expensive spot pricing
Contracted rates will protect you from rate increases, but will also not give you a discount when rates fall. In Europe, 50% of trucks drive empty, and by using contracted rates, you are partially paying for it.
Carriers often increase their rates because they also need to manage their risk of driving empty. A contracted rate is often above the spot price, but below the rates during peaks.
So why not use this knowledge to your advantage? By using Cargors transport network, you can approach multiple carriers with one transportation request. Sign up and discover the benefits.
That way, you’ll get offers from carriers who are already planning to drive on that route. And to avoid empty trips, these carriers will give you much better prices which will help you reduce freight costs.
Improve communication regarding transportation
Poor communication will cripple your logistics and significantly increase your freight costs. For example, the traditional freight market is dominated by brokers who act as a hub between different carriers and shippers.
This is a good structure until something goes wrong. In the event of a failure, a shipper must contact the broker, the broker must contact the carrier, and the carrier must contact the driver back and forth. This can lead to long and unnecessary delays.
Internal communication is also very important. Work with others and monitor inventory levels to ensure products are ordered on time. Speak with purchasing and sourcing from time to time to stay informed of changes at suppliers that may affect the supply chain.
Follow up with the sales team to ensure that forecasts have not changed. A good manager is able to keep an helikopter view and knows how the supply chain works.
Use a transport network and gain access to more carriers and lower costs
Have you been working with the same carriers for some time? If so, then how do you know if you still have the best prices? Prices in the transportation market are constantly changing and are influenced by several factors.
By using Cargors transport network, you gain direct access to a large group of carriers who may be waiting for backhaul. Carriers love backhauls because they make money when they would otherwise incur costs for empty miles.
For a backhaul, many are willing to offer a rate that simply covers fuel costs, plus a little extra.
Gain market intelligence by joining transport/logistics related groups
There is endless knowledge available on the Internet about the transportation market. Subscribe to free newsletters and make sure you are aware of regulatory and demand changes. All this information will help you better understand the transportation market and help you manage transportation more efficiently. Some tips to consider are:
Pay attention to carrier specialties/expertise
There is no single carrier in the transportation world that can ship all types of products to all the different destinations in Europe. Therefore, be careful and choose the carrier that can meet your specific needs.
For example, some products – especially those delivered to a large Bol.com warehouse – need to be delivered by appointment, so delivery is time sensitive. Make sure you select the carrier that confirms the requested dates and times.
In the Cargors platform, you can indicate to the carrier whether the time is fixed or not. Carriers are not allowed to confirm a different time. However, if the time is not fixed, always indicate that your pick-up and delivery dates and times are flexible. This way you give the carriers more flexibility which they will reward with lower prices.
Another tip: always make sure your carrier has enough experience on the route and with the type of products such as ADR, Conditioned, Pharma, etc. Not having the right experience can lead to several issues and additional costs.
Use data to understand the current weakness in shipping
Improving your business and reducing your freight costs is all about learning from the past and anticipating the future. Enable a system or a simple log that can show you the following:
- When you went out of stock
- Which orders were not picked up on time
- Which orders were not delivered on time
- Which carriers failed the delivery
- In which month did you miss the pickup or delivery
- Which orders were damaged during delivery
All this data gives you tremendous insight into how your transportation management is performing. For example, a high damage rate may tell you something about inefficient packing, and a month in which you miss the most deliveries may tell you something about scheduling transportation during the peak where the chance of delays is the highest.
Improve your pallet utilization and reduce the number of pallets shipped
Many companies don’t fully utilize the space on a pallet, which increases transportation costs and sometimes the risks of damage. Make sure you know everything you need to know about shipping on pallets. This knowledge will save you a lot of time and money. Use the following 9 tips on palletizing to get the most out of shipping on pallets:
- Consider the pallet dimensions when determining shipping boxes.
- Put heavy goods on the bottom which will reduce damage on other boxes.
- Do not go over the edge and avoid damage to your goods from other pallets.
- If you are using shrink wrap or a tie-down strap, make sure you start at the bottom and join the pallet and goods together.
- Make sure you make better use of the height without compromising stability and damage to the bottom layers due to the weight of the layers on top.
- Make sure you use a slip mat or corrugated inner layers to reduce the risk of slipping and distribute the weight better.
- Make sure you don’t exceed the maximum weight allowed.
- Avoid stacking in pyramids because the top boxes in a pyramid have a high risk of damage.
- Use palletizing software which takes into account the size of the product, the number of units, the weight of the units, the stability of the load, the stacking limits and tells you how to place the most units on a pallet without compromising safety.
Consider using the following palletizing software:
Focus on the net cost of your transport needs
How do you measure the cost of your transportation needs? Many companies make the same mistake and only look at the most important rates. As a result, they forget to take into account the extra waiting costs, the costs in case of cancellations, and the costs of calling, emailing and searching for potential carriers.
Always look at the bottom line and make sure you are aware of hidden costs. Every quote in Cargors clearly shows the base price (excluding VAT), the hourly rate in case additional waiting hours are required, and the cancellation fee.
We have standardized the process so you don’t have to spend hours searching, filling out forms, and comparing quotes.
Outsource your transportation department
What is your core business and do you really need a transportation department? If transportation is not your core business, then outsource your transportation department and focus on what you do best.
Outsourcing freight management shifts the financial burden of personnel and capital expenditures. Carriers work more efficiently than you because they can buy things, like fuel, in bulk.
When you own your own trucks, consider parking or selling them and explore outsourcing freight to outside experts.
By using the 18 ultimate tips on how to reduce your freight costs – you can significantly reduce costs and make your transport much more efficient. Not all tips might apply to your company or product.
Therefore, the purpose is not to apply them all but to select a few where you think you can achieve the most. In case you have any questions or need more advice then please let us know. You can contact us anytime.