How to Save money on Shipping: Measuring Things that Matter
By Joe Lynch
In a perfect world, Less Than Truckload (LTL) carriers would pick up freight and deliver it on the agreed upon day for a fair price. Of course, all the freight would arrive undamaged and the invoice would always match the quoted price.
Unfortunately, we don’t live in the perfect world and not all carriers are created equal. So we need a good carrier scorecard to objectively measure carrier performance.
The scorecard should measure carriers on the four most important attributes: cost, on time performance, billing accuracy and damage free shipments.
The ultimate metric for measuring cost performance is cost per is pound. This metric is easy to create, completely transparent, and will give you great insights into your freight spending. The cost per pound metric can be used to compare individual shipments, carriers, and even weekly invoices.
To create the cost per pound metric, take the cost of each shipment and divide it by the shipment weight (pounds). Example: $507.34 divided by 1440 lbs. equals $0.35 cost per pound.
Cost per pound for LTL shipments will vary depending on the freight class, carriers, and pick-up and delivery points. The average cost per pound will vary between $0.10 and $0.75 with most shippers falling in the $0.22 – $0.42 range. The lower the cost per pound is obviously better because it means each shipment costs less.
On Time Performance
All LTL carriers provide an estimated transit time for shipments. Unfortunately those transit times are not guaranteed. Most carriers will have on time performance of 90% or better, but understanding exactly how a carrier performs on your lanes will help your company make better, informed choices.
The on time metric is easy: simply divide the number of on time shipments by the total number of shipments. Example: 40 on time shipments divided by 43 total shipments in a given period equals a 93% on-time performance result.
Incorrect freight bills drive accountants crazy! In addition to the extra hours it takes to reconcile accounts, the added incorrect freight costs must also be accounted for. Sometimes it has to be passed on to clients, who were already billed for the freight. The other alternative is the added cost has to be absorbed by the company. Either scenario costs money.
Many companies pay outside auditors to identify and recover billing errors. Auditors are usually paid for each bill audited. Some even get a percentage of the recovered savings, so they have a vested interest in more incorrect bills.
A freight bill should match the quoted price, unless the shipper provided an incorrect weight, freight class or NMFC number. From my experience, most shippers can begin saving money immediately by doing those three things correctly. The carrier and or the logistics companies involved can help the shipping group identify the correct NMFC and freight class.
To calculate billing accuracy, divide the number of correct bills by the total number of bills. Example: 61 correct bills divided by 64 total bills equals 95% billing accuracy.
Damage Free Shipments
Cost, on time performance and billing accuracy don’t mean much if the carrier damages the freight; therefore, freight damage must be measured.
Be sure to measure all damage, not just freight claims filed. Damaged packaging, small scratches and loose pieces are all upsetting to the receiver and the end customer so they should be documented and measured, even if there isn’t a freight claim filed.
Freight damage should always be far less than 1% of total shipments. If freight damage is over 1%, there is something seriously wrong with the packaging, loading/unloading process or the carrier.
To calculate the number of damage free shipments, divide the number of damage free shipments by the total number of shipments. Example: 112 damage free shipments , divided by 113 total shipments equals 99.1% damage free shipments, thus meeting the less than 1% damage goal.
The first goal of the carrier scorecard is to document the current state (what’s happening today). The second goal is to continuously improve the metrics, which will improve shipping function and ultimately profitability.
The scorecard should be reviewed and discussed by the team on a regular basis. During the scorecard reviews, leave plenty of time for planning future improvements.
Your bottom line depends on it.