Printer FriendlyAnalysing and reducing freight costs
By Mahomed Ladha MIEx,MCIPS,ACMI
Like many other professionals I find I have had to analyse
the costs of freight especially in periods, as now, when costs are escalating,
both in manufacturing and for freight.
Most of us, in small companies, do not have time to sit back
and examine these costs but I believe these are crucial and some simple reviews
can make a difference between making a profit or a loss. Somehow time has to be
made for this. Using a simple spreadsheet
to keep track of your shipments can serve as a record, a chase list and an
analysis tool. The initial set up and gathering of existing data may take time
but once set up, you can keep this up to date entering data for each shipment
as it happens. The spreadsheet can be shared on a common hard drive so each
user can view and keep information updated. One row per shipment is sufficient
with a few headed columns for the data you want to analyse. By using filtering
and sorting you turn the spreadsheet into a powerful tool.
Some actions you could take to check and improve your costs
are below:
- Check regulations- documentation and permits required. This stops delays and hold ups on your export or import and so saves costs. Talk to your trade body or freight forwarder to get the right information.
- Analyse
your traffic – where does it go? How much weight/volume per shipment? How frequently?
What are you paying for it? What terms do you sell on? Should you change the terms of shipment
so improve your margins? What delays you are incurring in arranging shipments?
Why? This sort of analysis is a very important step. It tells you where
you are and how you can improve costs and performance.
- Most
traffic will relate to the 80/20 rule. 80% of it goes to 20% of your customers
or to specific destination. To start improving costs concentrate on this
traffic.
- Can
you consolidate shipments? Fewer shipments will save costs in time,
administration and will allow you a volume discount.
- Selling
on CIP or DDU terms instead of Ex works or FOB can be much more profitable
provided you do your sums right!
- Do not just look at headline cost such as
$105/1000kgs or £1.25/kg. Check the total costs from collection to
delivery (excluding import taxes/duties). You may find it is cheaper for
you and your customer to have a total price door to door (excluding
taxes/duties) instead of just delivery to an airport or port. After all
you and your customer are only interested in the product which costs less
to get to the destination and to sell it at the most competitive price or
make a higher margin from having saved costs. You may need to work with
your customer to find out what he is being quoted for clearance and
delivery and you maybe able to offer him a better deal and get that order
!
Always get a number of quotes so
that you get to know what the market is charging for particular destinations.
For your regular shipments negotiate with your forwarder for those destinations
and review these at least every 6 months so that you know you are still paying
competitive prices.
- Use
specialist forwarders/shipping companies for specific destinations. Your
regular forwarder may not offer you competitive costs as he may use his
regular contacts or he may not have the skills to handle a particular market.
These specialists companies concentrate on specific destinations and have frequent
services with competitive prices and crucially have special skills and
knowledge of their markets.
- From
your analysis you will know the type of shipments/weights/volumes your
company ships. This will enable you to compare modes you should use,
everything else being equal. For small shipments it may be cheaper to use
courier service as their door to door price can be competitive for small
consignments compared to airfreight. Airfreight can be cheaper compared to
sea freight when the shipment is small – say under 200Kgs – as sea freight
may have high minimum costs. Airfreight to destinations outside
also is quicker so that there is saving in other costs such as stock
holding. A trailer to a European destination is cheaper than airfreight
and probably is as fast!
- And always check total costs not just the headline prices. Always compare like to like. Continuously review and save money!