Let me Guess… Your Transportation Costs and Customer Penalties are Increasing

Kristen Daihes Partner
Read Time: 4 minutes apprx.

Most shippers have been struggling with increasing transportation costs and customer penalties. If you are one of them – get used to it. This is about to become the new norm. The good news is analytics is positioned to support you, no matter your strategy.

Rising Transportation Costs

There are a few forces driving the headwinds we expect to continue in transportation costs:

  1. ELD (Electronic Log Device) Mandate – This adds cost because of the equipment, but more importantly, this mandate enforces strict compliance with Hours-of-Service (HOS) rules and therefore reduces capacity.
  2. Driver Shortage – Demand exceeding supply is driving up wages and resulting in less reliability (through higher turnover).
  3. Tougher Delivery Requirements – Shorter lead times and shrinking delivery windows are at odds with rescheduling deliveries with carriers in the spot market

Increasing Customer Penalties

While rising transportation costs would be enough to deal with, many shippers are also seeing an increase in customer penalties:

  1. More retailers are adopting penalty programs with challenging claw-back processes
  2. Increasingly aggressive delivery windows from changing customer delivery requirements are driving higher non-compliance
  3. Shippers have much less control of delivery as loads move away from preferred carriers (because they don’t have the capacity or are finding higher priced loads to move).

The Perfect Storm

The tightened delivery window comes as freight costs are soaring and many shippers are scrambling to book transportation, particularly for time-sensitive deliveries. Prices on the spot market, where shippers arrange last-minute transportation, are up more than 20% compared to this time last year. Fuel prices are also rising, adding to costs.

What Can You Do About It?

The shippers most exposed to these headwinds do not have a good handle on their network performance and struggle with inefficient processes. The ones who are able to compete effectively are a carrier’s “load of choice”. One of the best ways a shipper can navigate through this perfect storm is to perform a detailed analysis of their network’s carrier performance and cost, and then to minimize worst-case outcomes in an already challenging market.

You should be able to answer the following questions: What proactive actions can be taken to avoid the spot market, manage accessorial costs, maintain tender acceptance, reduce the time spent for a driver hunting down their trailer in your yard or getting loaded and back on the road quickly,, etc.? Do primary carriers pass on some loads only to stick you for a higher cost in the spot market? It does happen! If you can’t answer these questions for your company, you have some work to do.

Those most adaptable saw these headwinds coming and were able to take mitigating action. Analytics can help you better position your company to navigate through this storm:

  • Descriptive Analytics can help you determine what is happening or has already happened. Historical reports can help you understand your carrier acceptance rate and how far down your preferred list you have to go. . Are there certain lanes where more than 50% of your loads are not being accepted by your primary carrier?
  • Diagnostic Analytics can help you define what is causing an event to occur. Speed to insight on the cause of events can drive more outcome-based action. Is the spot market 50% higher than your primary carrier’s negotiated rate? If you proactively renegotiate a rate increase can you avoid some of rejections from your primary carriers?
  • Predictive Analytics can help you predict trends, patterns, and behaviors. What if you could forecast the likelihood of tender acceptance when procuring transportation? Does your tender acceptance increase if you get your loads to the market one hour earlier every day? Are there opportunities for you to use business process automation to make this efficiency improvement sustainable?
  • Prescriptive Analytics can recommend actions to maximize desired outcomes. What if you could adjust your strategy during a season to adapt to coming headwinds? If your strategy is procurement negotiating lanes and selecting primary carriers at the lowest cost only, there are market factors out of your favor, headwinds pushing you into a different operational play vs. your strategy. You have an opportunity to develop solutions to help you recommend an alternative course.

It’s a tough world out there right now for shippers and market forces only continue to make it more challenging. To best position your ability to navigate through these continuing headwinds, invest in analytics to help you navigate through this storm