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ISSUES Business Solutions Cutting Freight Costs when Fuel Keeps Rising With only the strength of the dollar to keep petrol below the $2 mark, it would take a brave soul to predict relief in the medium or even long term Most business owners are in sombre agreement that fuel prices are not going to drop anytime soon, if at all. With only the strength of the dollar to keep petrol below the $2 mark, it would take a brave soul to predict relief in the medium Again, I’m as aware as anyone that speed and reliability are considerations when selecting which carrier should take which shipment 30 Link January 2011 or even long term. If as a distributor you agree with the above there is an important question that needs to, and can, be addressed. How can freight costs be managed effectively to minimise the impact of further fuel hikes? Paul Lattimore, who heads the NZ agency for the Sydney developed IFS SmartFreight®, believes the answer lies in running multi–carrier dispatch software, with the ability to select the cheapest dispatch method per consignment.
“All carriers, whether courier or bulk, would prefer to be the exclusive provider in their field for any given client”, Mr Lattimore explains. “But while service is a major factor in your choice of freight provider, it’s important that you at least be aware whether your default carrier really provides the cheapest method of shipment for a particular consignment.” The IFS SmartFreight ® software system offers an optional “Cost Comparison” module, allowing freight rates for each carrier to be inserted. At the push of a button, any consignment going out the door can have the cheapest carrier automatically selected, eliminating guesswork and potentially saving a business thousands per 2.0 million data points would be handled by a team in a year, a simple calculation shows this year in unnecessary freight costs. “Again, I’m as aware as anyone that speed and reliability are considerations when selecting which carrier should take which shipment”, says Mr Lattimore. “However to ignore the option of at least comparing rates for a consignment would be folly, given that the technology exists. All freight companies have strengths and weaknesses in their rates schedules, and different rate structures mean no carrier is going to come out on top every time.” IFS SmartFreight® has now exceeded 1400 installations worldwide, with most clients taking advantage of the multicarrier options that the software provides. Since reaching New Zealand in 2005, IFS SmartFreight® is used to process over 120,000 shipped items per month, with clients throughout the country moving everything from hairspray to medical supplies to windscreens. Managing Freight Pricing – Where companies hit the wall? Pricing and business development teams in any reasonably sized freight forwarding company handle around 200 bids in a year. Typically each of the bids would contain around 200-800 lanes that need to be priced. These lines could be Ocean based, air based and involve specific incoterms, service conditions, SLAs and require all accessorials to be provided as per client’s format. Even if we take average 500 lanes in a bid and around 5 to 6 accessorials and there would be at the least 15-20 odd data points that need to be determined per lane. A simple calculation would show that in a year, a team would handle 2.0 million data points. Freight being the most critical one ofcourse and is a decisive factor for winning the business. Multiple studies by various industry players and my interactions with some of the leading players indicate that ‘all powerful’ excel is still the ‘app to go’ when it comes to determining pricing. Organizations invest Business Solutions ISSUES millions of dollars in automating operations and improving customer experience. They do realize that those few cents in the high volume lanes may make or break the deal on hand. Yet age old practices galore. With some manual calculations they are able to push the proposal off the table. However, more and more logistics companies are realizing that yield management is matter that needs to be actively managed in each deal not just for winning the deal but for sustenance of business. Pricing and yield management has become a focus area for CFO’s of the world today. For determining basic freight itself over 10 decision points need to be factored in which include historical data, achieved costs, volumes etc., Optimizing this further at the tradelane level, given the size of data involved is herculean task. Slowly, but definitively more and more organizations are moving towards automating this area and managing yield more actively in each transaction and shipment. Yep, it’s the factor that puts you in or out of business. Profitable growth, that’s the buzzword of the day. One would wonder why did no one addressed this space when there are so many application vendors all around. One of the primary reasons is excel is such a handy tool, its difficult to get such usability in any other app. More over each of the clients give different formats to submit (most of them again excel based) and multiple data points to feed and this complicates the task. www.smartfreight.co.nz Paul Lattimore. paul@smartfreight.co.nz brahma.mutya@wipro.com SOME OF THE KEY POINTS TO REMEMBER WHEN YOU HIT THE WALL IN PRICING IS: 1. Roll up lane level volumes to gateways. That is where volume play is. 2. Keep achieved costs handy. But, never they are the final answer to fix a new contract. 3. Keep an eye on spot rates. 4. Never predict pricing. Have a scientific mechanism to determine final price. 5. In freight forwarding every single contractual term counts. Convert all of them into a data point. January 2011 Link 31
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