Freight costs and freight budget adherence are among the most important and often overlooked aspects of transportation management. As the industry struggles to recover from the unprecedented global events of 2020, recognizing budget limitations is essential for industry growth and success.
The costs of logistics as a ratio of total expenses are too significant to ignore. For example, according to Global Trade Magazine, “One critical factor that executives should monitor closely is logistics management. This sector covers important activities relating to procurement, transport, and storage of goods. In most industries, supply chain logistics account for 5% to 50% of a product’s total cost.”
Measuring performance with transportation KPIs and freight data is getting easier. Budgeting and managing freight costs are critical to overcoming any disruptions and increasing profitability.
Freight management parties can rely on these tips to recognize and respond to transportation budget limits.
Where Freight Managers Go Wrong with the Budget
The biggest problem when planning a transportation budget is an inability to see actual versus projected costs across the network. The first step in establishing a transportation budget must include a clear idea of what the overall goals and limitations are for the shipment. That includes knowing what needs to be shipped, the preferred max costs, and more.
There should also be a clear lane or route planning guide that considers volume forecasts in use, so freight costs can be recorded and analyzed during auditing. For many companies, this means there must be open and transparent communication lines with both sales and production management teams.
Unfortunately, that process is usually missing from most supply management chains, which can lead to massive stress within the organization. A sudden mid-year production change, whether in the local area or on the other side of the country, can potentially have a tremendous impact on transportation budgets.
Without excellent and clear communication, these trends will not be identified and acted upon until it is too late. As a result, freight cost changes go unnoticed and surpass budget limitations.
Knowing Freight Costs in Advance is Essential
Understanding transportation freight costs and current rates for lanes must be the primary goals of cost analysis. Keeping costs under control should be a proactive, not reactive strategy, especially during an unprecedented time of transition and reopening ahead of peak season. Keeping costs in check can help companies avoid unwanted fees and additional expenses that increase shipping costs and cut profitability.
General costs that will always affect cost estimates and projections include fuel costs, driver wages, regulatory fees and expenses, vehicle maintenance and repairs, and a host of other accessorial charges that may arise. While these expenses are known to exist and should be anticipated, the challenge is in their unpredictable nature. Or is it?
Think about this. Transportation management depends on historical and real-time data. The supply chain operates on roughly an 18-month cycle. While companies plan for accessorials and other hidden expenses, they must consider the most likely scenarios. In this intersection, freight cost projection and predictive rates can help companies better prepare for unknowns.
When they do arise, the blow is not as bad as it would have been otherwise. With extra steps and processes, changes to driver schedules, accessorial changes, and other factors, transportation spend creates a pattern. That pattern helps companies more accurately predict rates to ensure the budget is not blown out of the water.
Tips for Maintaining the Budget and Maximizing Profitability
When dealing with analysis and projection of freight cost, freight management parties should follow these tips to apply freight market intelligence:
- Consider all companies’ unique needs, including freight brokerages and carriers, and how they are likely to respond to market changes.
- Freight management parties should always stay forward-looking, considering how rates may change in the coming days or weeks.
- Companies should invest in automation and technology to collect and apply freight data seamlessly, such as how Lane Signal helps users realize who controls the buying power at each origin or destination.
- Analyze the costs of freight transportation and partnering companies’ performance (primarily because the need for customer-specified delivery remains at an all-time high).
- Share insights with freight management parties to encourage more collaboration and lower unexpected costs.
Keep Operations in Line with the Freight Budget
All supply chains face the uncertainty of market instability, political upheaval and other disruptions. Disruptions are inevitable. However, companies that take a proactive stance and apply freight data to measure and maximize performance are poised to reap the most significant rewards.