5 Simple Strategies That Protect Manufacturing Businesses From Fluctuating Freight Rates
This is a guest post by Geoff Whiting.
Freight rates can fluctuate wildly, and those fluctuations can have a significant impact on your bottom line. For manufacturers, these are even more challenging as you typically inbound and outbound large volumes of freight. Reducing costs and controlling risk have become top operational objectives for 2023.
No matter the size of the manufacturer, there are some core strategies companies can implement to reduce costs and verify that they’re making smart business decisions. Five such simple strategies can protect your business from increased costs and ensure that your shipments reach their destination on time and on budget.
5 Simple Strategies Businesses Can Use
Manufacturing operations follow many existing freight needs for high-volume shippers. That means you’re working within a system that can meet some of your needs immediately, but there are areas to negotiate based on your unique orders and customers. If contending with fluctuating rates is becoming a burden, consider these methods for cost control:
1. Working with a 3PL
2. Expanding your list of suppliers and carriers
3. Reviewing modes and locations
4. Locking in rates
5. Consolidating shipments
1. Working with a 3PL
Broadly speaking, working with a 3PL can help businesses manage their shipping costs and find the best rates for their shipments. For manufacturers, the 3PL can serve as a link in their supply chain that stages goods close to end-customers, reducing last-mile expenses. If your partners order less than a full container or truckload, you can pay significantly if you’re exporting goods.
A 3PL partner can help you manage inventory and ship by cost equivalent unit (CEU), instead of partial containers. That’ll reduce your immediate export costs, while the 3PL can then split containers across multiple domestic warehouses to fill smaller orders from your customers. Goods get to your buyers faster, and it’s easier to stock inventory.
There are significant ways to save by shifting your fulfillment strategy, and a domestic 3PL provides flexibility and cost-savings opportunities across inbound, storage, fulfillment, and last-mile.
2. Expanding Your List of Suppliers and Carriers
Manufacturers, like most other partners in a supply chain, have options to shop around. For shipping, you want to utilize this for both your carrier selection and companies that provide you with raw materials, parts, equipment, and anything else you import to your production facilities. Negotiating for lower shipping rates or moving goods closer to your location prior to shipping all help you control costs.
Automation and AI tools can be especially helpful here by creating rules for your shipping needs and selecting appropriate carriers. You can automate the process to always select the lowest-cost option that promises to deliver your goods by the customer-required date. This way you meet your service-level agreement (SLA) to avoid penalties or strained relationships.
If you’re willing to work with a 3PL or a freight forwarding partner, ask about their carrier list. You may be able to negotiate a further discount or reduction in fees if you also switch to their shipping account with a new carrier. 3PLs and similar companies negotiate rates based on volume to offer lower costs to their customers. In many instances, carriers are willing to provide more flexibility in rates or to reduce fees on certain shipments when the 3PL secures new business.
3. Reviewing Modes and Locations
Many manufacturers set their partner and shipping mode list and let it run. However, when freight rates fluctuate significantly, this can leave you with suboptimal selections. It’s time now to review your modes and lanes to see if you have the right mix for your products and your customer base.
For example, switching from the Port of Los Angeles to the Port of Savannah might yield cost savings if your customer base has moved further inland in the U.S. or to the East Coast. Depending on your port of origin, shipping to Savannah may take longer but may be more affordable than trucking FTLs across the U.S.
Look at the rail options at the ports you use and see where rail heads exist. You might be able to shift to rail for longer parts of the journey, and new rail switching services could have come online since you last looked.
Each transportation option is best for different loads and applications. Bring in experts or hire outside consultants to help you understand these differences and evaluate the moves you and your partners make. Reviewing options based on cost and your customers’ needs can also help ensure you’re selecting the right options, service levels, and more.
4. Locking in Rates
Manufacturers can directly target the fluctuating nature of shipping rates by increasing their use of contract rates and services. Typically, a contract will run for 6 to 12 months. If you think now is a good time for low rates ahead of summer and peak pricing, it could be a smart move to lock in your rates with carrier contracts.
These give you more stability and predictability for planning and ensuring your ability to afford your shipments. You’re also improving carrier relationships and have more accountability with your partners. Carriers like the predictability and it improves their ability to schedule drivers and retain talent, which makes them a win-win when you either lock in availability or a low rate.
Contracts don’t preclude you from using spot rates, which may be more affordable if freight rates overall drop significantly. You can hedge some of the bullwhip effect with these options. That said, contract rates typically favor you because carriers are more willing to negotiate to secure consistent business.
Dive deep into your financials and see if this makes sense at more than just a per-load level. If you’re struggling to make this work or worried about getting locked into a rate that’s too high, consider asking about annual, quarterly, and even “mini” (often monthly) bid pricing.
5. Consolidate Shipments
When freight rates or CEUs are higher than the norm — or higher than what you’re comfortable paying — you want to minimize loads to control costs. Shipping a full truckload is your most cost-conscious option and there are a few paths to increasing these shipment types.
Start by working with existing customers and vendors. See who has flexibility in shipping times and lead time, or who can increase their minimum order. You may need to consider extending the bulk discounts you offer to reach CEU levels. For inbound, look at ways to shore up more warehouse space and adjust production lines to allow for truckload freight at your dock doors.
Outside truckload management companies may help you consolidate your shipments by working with multiple carriers or other companies for import or inbound goods. There can be advantages to shipping via CEU and then having this broken down near ports for the last mile when you can’t reach truckload volumes on your own.
Data Impacts Every Mode and Option
Freight is becoming more challenging to track on your own. It’s time for manufacturers to invest in more transportation technology and integrate their tech stack with partners up and downstream. Look for solutions that spot trends, identify errors, and update selection based on cost and carrier performance.
As supply chains get more complex and new potential partners emerge — or past partners consolidate in mergers as freight rates bottom out — you’ll want automated data collection to make your reviews easier and more accurate. No matter which cost-savings path you pursue, better data and analysis support give you your best chance of making the right decision for every load.
This was a guest post by Geoff Whiting.
Geoff Whiting is the Senior Writer for Red Stag Fulfillment, an eCommerce 3PL focused on supporting heavy, bulky, and high-value products. He has more than a decade of experience covering eCommerce, technology, and business development. In his free time, Geoff enjoys exploring new cuisines and music, and trying not to get too lost listening to podcasts while walking in nature.