Freight optimization has become a critical focus for shippers across the United States due to the face of rising transportation costs and increasing demand for efficiency. In the June 2024 Manufacturing ISM® Report On Business®, data indicated that the overall economy grew for the 50th straight month. However, respondents pointed to a mixed bag of increased costs and contracting demand. Against this backdrop, smart shippers are seeking creative and cost-effective methods to reduce freight expenses while striving to maintain high service levels, increase sustainability, and avoid potential impacts on critical supply chains. But how? Cost reduction strategies in supply chains don’t have to be complicated. In this article, we’ll explore some of the most effective ways to reduce freight costs, ranging from consolidation to choosing the right shipping mode and speed.
Considering Consolidated Shipping
Consolidated freight shipping, where multiple shippers share space on a single truck or container, is not new, but the concept of consolidation truly deserves inclusion in any conversation about reducing freight expenses. Consider this: just as individual consumers can get better rates on goods through bulk buying, shippers can also reduce their cost per shipment by moving freight more efficiently in larger quantities.
Shippers can apply consolidation for cost savings in a number of ways with greater savings to be found as you move up in scale. If you’re already consolidating freight from single packages or pallets to LTL loads, is there an opportunity for you to think even bigger as you look for cost savings? Consolidation from LTL to full truckload shipments brings significant savings over time and shippers may even be able to find additional savings beyond that by consolidating truckload shipments and signing longer term contracts directly with a few trusted carrier partners compared to playing the spot market. The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index—a good barometer of contract freight volumes—rose in May of 2024, but there is still plenty of room for favorable negotiations by shippers during second-half RFPs and contract negotiations. Consolidation of freight with a contracted carrier typically leads to fewer empty miles overall and better utilization of capacity, making it a true win-win for all parties involved.
But what if you wanted to think even bigger than by the truckload? Utilizing other modes of freight transportation can bring the biggest cost savings of all, but considering alternatives may come with some trade offs as well.
Modes Matter
Shippers seeking cost-effective transportation alternatives should absolutely take a long look at all potential modes for their freight and many already are. IANA—the Intermodal Association of North America (IANA)—reported another month of strong gains for intermodal freight in May of 2024 and the Journal of Commerce Intermodal Savings Index (ISI) reported that intermodal shippers in the US saved almost 26% under annual contracts in the first quarter compared with trucking. But rail isn’t the only option for those considering mode as a component of their costs. Shippers moving bulk commodities have long seen a benefit from using barges as a cost-effective mode of transport. In fact, barge shipping, often underappreciated compared to trucking and rail, is making a strong comeback, and becoming a key player in freight optimization efforts. Utilizing the extensive network of rivers and canals in the U.S., barge shipping offers several advantages, including:
- Cost Efficiency: Barges can transport large volumes of cargo at a fraction of the cost of trucks and trains.
- Fuel Efficiency: Barges are more fuel-efficient than trucks, emitting fewer pollutants and reducing the carbon footprint of transportation operations. This makes barge shipping not only cost-effective but also environmentally friendly.
- Reduced Congestion: By diverting freight from congested highways and railways, barge shipping helps alleviate traffic and reduce wear and tear on infrastructure, leading to potential long-term savings for shippers and governments.
That said, there are often potential tradeoffs that come along with the cost savings of utilizing different types of transport, including the all important question of shipping speed. If you’re introducing a new mode to your transportation mix you’ll also likely want to weigh whether you have easy access to the right transportation partners and whether you’ll have the right measurement metrics and tracking visibility. Luckily freight transportation has entered a new era of technology adoption where all these questions can be more easily answered.
Turning To Technology
Advancements in technology are playing a pivotal role in freight optimization. Real-time tracking, predictive analytics, and automated routing are all helping shippers make informed decisions and optimize their transportation spend. Over the last several decades, we have witnessed several key technological innovations enter the market and quickly gain wide adoption, including:
- Transportation Management Systems (TMS): TMS platforms help shippers plan, execute, and optimize their freight movements. By providing visibility into the entire supply chain, these systems enable better coordination and more efficient use of resources. Today the industry benefits from specialized management systems for each shipping mode, including ocean, rail and even air cargo, with the ability to connect different datasets together via API and EDI connections as needed. A modern TMS also gathers large amounts of data together in more easily accessed formats, making it that much easier for shippers to apply AI and machine learning to analyze past performance, identify patterns and even predict future needs. In addition, new automation options open up opportunities for shippers to reduce workload, improving costs by increasing efficiency.
- IoT and Telematics: Internet of Things (IoT) devices and telematics are used to monitor the condition and location of shipments in real time. This data helps shippers optimize routes, reduce delays, and improve overall efficiency. Even the ‘once opaque world of domestic marine transport' is experiencing a renaissance, with real-time tracking systems leveraging GPS and satellite technology for greater visibility.
- Digital Freight Marketplaces: In the evolving landscape of freight transportation, significant regulatory changes have paved the way for greater industry innovation and accessibility. The Motor Carrier Act of 1980 opened up a whole new world for inland transportation, making it easier for new trucking companies to enter the industry and removing many prior restrictions. On the heels of this legislation, the first loadboards soon followed and today the industry offers many convenient online services that connect shippers with the transportation partners they need. The freight transportation world has now in fact grown beyond simple truckload loadboards, with new options available for shippers to easily access transportation capacity through a wider variety of online portals where they can receive rate quotes for shipments and even process payments or track their transportation spend. For example, the OpenTug Marketplace offers a convenient centralized location for shippers to find operators, terminals and storage, or rent assets quickly when utilizing marine transport.
Conclusion
As shippers continue to face pressures to reduce costs and improve efficiency, they’ll need to look at each aspect of their transportation spend with fresh eyes, searching for opportunities to embrace change and explore the latest technological advances. By considering a wider range of transportation modes, such as integrating barge transport into their logistics strategy, shippers can gain greater flexibility and resilience in their supply chain. This adaptability allows for better management of disruptions and cost fluctuations, ensuring a more robust and responsive operation. Wondering whether barge transportation could be the right optimization option for you? Explore some common barge transport myths & misconceptions for a deeper dive!
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