Freight and Efficiency in the Chemical Industry
November 1, 2008
Most chemical companies are only concerned with finding a trucking company that is HazMat certified; however, at this point, almost every carrier can handle most hazardous materials (excluding explosives).
In such a tight market, chemical manufacturers and distributors now need to consider ways to reduce their freight costs. A great place to start is on inbound shipments from suppliers.
Cutting Your Freight CostThe simplest and easiest way to immediately cut your inbound freight cost is to change your shipping terms from “pre-paid and add” to “collect.” Having your vendor ship collect on your recommended carrier eliminates any handling charges, thus saving you money. However, there are exceptions where having your vendor pre-pay and add the freight will benefit your company - even if they add handling charges.
In general, there are many benefits to having your inbound shipments routed collect. First, it usually saves a lot of money. Even if you don’t have as aggressive freight deals as your vendor, their handling mark up could be a lot higher than your freight deal.
In addition, it reduces the number of carriers from different suppliers arriving at your receiving dock every day. When you control the routings, you control how many trucks deliver to your door. That also makes it easier to maximize your warehouse staff’s efforts.
Controlling your inbound freight also makes you a bigger player with the freight carriers you work with. The more volume you send to a carrier, the easier it is to negotiate and get better deals. However, there are cases where having your vendors pre-pay and add freight can actually benefit you. First, some vendors do not add any fees for handling and freight is just a pass-through. You may want to have your vendor pay for this to save some money. But if you are trying to consolidate the number of trucks on your dock, it might still be worth routing by your carrier, even if it will cost you more.
Second, some vendors may have special pricing exceptions. In other words, they may have a product that ships out at a Class 150, but their pricing exception allows that to be billed at a Class 110. Unless you have the same exception, you will be billed at the higher 150 class (the difference between a Class 150 and 110 is 27%). Even if your vendor marks up their freight invoice by 10%, there is still a big advantage to have them prepay and add the freight.
The third instance is if your vendor has poor packaging. If you have a vendor that ships $15,000 stainless-steel units on a broken pallet and one spin of shrink wrap (I speak from experience here), you may want them to pre-pay and add freight. Even if they are charging a premium for freight, you do not want to deal with the hassle if that shows up at your door damaged. You will be much better off refusing it and letting your vendor deal with it.
Changing Vendors' Terms to CollectIt may take a little work, but the final payoff is maximizing your inbound freight cost. The first step in determining which vendors to route collect is to know what it will cost you to ship it collect. The next few times you are on the phone with your vendor, ask them what freight will be. While on the phone, go to your carriers’ Web site and find out the price with your carrier. If you are unsure about freight class, ask – they’ll usually know.
In addition, ask them if there are any pricing exceptions or FAKs (Freight All Kinds). FAK is a pricing exception that allows for higher classes to move at lower classes). If they are moving something at a class 110, which would be billed at a class 150 if you routed it, then stick with their deal.
Finally, identify vendors who have poor packing. If their product is easily damaged, then take the burden off your hands and let them prepay and add it. Whatever they want to charge, pay it - it is not worth your company’s time.
ConclusionThere are many things you can do to help your company to be more efficient - it is just a matter of taking the time and putting them in place.
George Muha is the Northeast Regional Sales Manager at Logistics Management Inc. (LMI). LMI specializes in helping companies to significantly reduce their freight expense.
For a free Freight Evaluation, contact Muha by e-mail to firstname.lastname@example.org or phone (908) 879-2978.