Part 1 of 22 Ways To Reduce LTL Costs That Don’t Involve A Price Reduction
- Audit Your Freight Bills
One of the best ways to reduce LTL expenses is by having transparency and visibility to those expenses. Use the Trust But Verify principle for all things involving carrier invoices. Use this principle to verify not just what your carriers are doing, but also what you are doing.
The first step is to ensure you are getting a quote for every shipment. This is not the act of rate-shopping to pick the cheapest carrier, but instead obtaining an expectation of what the carrier will invoice. You can’t verify that you are paying the correct amount unless you have a baseline starting point.
Yes, you can skip the quotes and just perform a post audit on your invoices to uncover carrier errors. But it may not help you uncover significant issues on your end, such as:
- Your sales team could be over-estimating transport costs and thus losing sales.
- Your sales team could be under-estimating transport costs, and creating a loss on sales.
- You may not be aware of carrier fee changes which could be substantial. Just look at the Over-Dimension fee adjustments that rolled out late in 2021.
- You may not be aware of major reweigh or reclass issues.
- You may not be aware of significant unexpected fees such as Detention and Redelivery.
- Your carrier may assess additional rates or rules due to limitations with their quoting process.
The second step is to obtain the means to compare carrier invoices to your quotes. This should be a basic function of the TMS you are using, and I hope you are using a TMS. Otherwise it will be a manual process which is better than no process at all but time-consuming. Have a process in place to compare invoice to quote in a timely fashion. It’s always best to stay in front of any issues rather than letting them build up and compound over time. And if the carrier is doing something wrong, you only have 180 days to request refunds.
While you can perform the quote vs invoice auditing in house, it may be best to have an outside firm conduct a post-audit as well as freight payment. Better yet, such a firm can also provide you with improved visibility and transparency tools over and above what your TMS can offer. Why is this important, you ask? Because of APIs. APIs are great as they allow for scalable automation of burdensome transportation tasks such as freight quotes. You ping a carrier with your shipment info such as origin, destination, weight, and class, and they send back to you in milliseconds via API a quote for that shipment. The problem is, you are taking for granted that the price the carrier is giving you is correct, that it matches the pricing program you have agreed to. That’s not always the case.
Carriers do make mistakes when loading any pricing changes. Many carriers utilize one team that creates the hardcopy tariff page showing you the pricing program you have. Another team loads the pricing in their TMS for rating purposes. These two teams may not be in perfect alignment, and thus what gets loaded to produce your invoice is not what is displayed on your tariff page. Other carriers produce their tariff pages “virtually’, or directly from the pricing loaded in their TMS. Thus eliminates the alignment issue above, but does not prevent the wrong pricing from being loaded. In my experience I have witnessed the following:
- A carrier failed to update a change to the fuel surcharge schedule. Thus every single shipment following that agreed-upon change was rated incorrectly.
- A carrier failed to update a change to the base rates. Thus every single shipment following that agreed-upon change was rated incorrectly.
- A carrier failed to load agreed-upon charges for Residential Delivery, causing all shipments requiring this service to receive the higher rules tariff charge.
Again, use of APIs can propagate these errors in undetected fashion. Catching carrier mistakes is important both for cases where they overcharge you and undercharge you. Undercharges may be the most impactful, as the carrier has a legal right to demand payment on undercharges up to 180 days after they happen. You don’t want that. Conversely, you only have 180 days to request carrier refunds on overcharges.
The third step is to identify potential issues even when your quote perfectly matches the carrier invoice. This step is particularly relevant to shippers who are not taking Step 1 above. Anytime one of the following fees or situations takes place, you should be taking a deeper dive:
- Reweighs: Even if the carrier charges are correct, is the carrier reweigh correct? If so, what error did your team make? Get in front of this. Reweighs amount to carrier risk, and are a cost they must absorb.
- Reclasses: Even if the carrier charges are correct, is the carrier reweigh correct? If so, what error did your team make? Get in front of this. Reclasses amount to carrier risk, and are a cost they must absorb.
- Over-Length: Due to the significant charges at play here, it is worth taking a closer look.
- Density Minimum, Capacity Load, Linear Foot, Cubic Minimum: Treat any of these applications as an exception. The financial impact can be significant such that you probably don’t want these rules to apply to your freight.
- Detention: These charges can escalate quickly, and carriers are getting better at using driver technology to identify delays. Verify the carrier is correct and, if so, pass these fees on to your customer that created the delay.
- Redelivery: Same as above. Like Detention, Redelivery is not a requested service but an unintended exception. Verify the carrier was not at fault, and adjust processes on your end to eliminate these.
- Sorting/Segregating: Ensure you are using the correct piece count. I have seen shippers over-state piece counts by using total item counts in the cartons rather than the carton count. Carriers may not correct this error for you.
You should have clear visibility of all special service charges and rules tariff rules that are being applied. These can be very significant components of your overall LTL transportation spend. Having a good special service (accessorial) audit in place with the proper transparency and visibility could help you reduce several percentage points if not more on your LTL transportation spend.
Putting a solid LTL transportation audit plan in place just makes good business sense. Sure, they come with a cost whether you do this in house, or use an outside firm, or both. But like the commercial said, “You can pay me now, or pay me later.” Better to pay now and control your LTL expenses. You will be thankful you did. Trust me.