How to Manage Fluctuating Transportation Rates
Inconsistent freight costs are likely numbered among every supply chain manager’s biggest (and most persistent) frustrations.
In addition to the obvious internal effects on budgets, margins and projections, a sudden spike in transportation rates can also inflate consumer prices and damage customer satisfaction with your brand. Outraged customers and near-zero margins are best avoided if one can help it, so it’s essential to understand the major driving forces behind the ebb and flow of transportation rates — both to prepare your company’s financials against rate volatility and to ensure customers still enjoy shopping your products when the dust settles.
Here’s what you need to know about fluctuating rates, plus five tips for successfully managing rate unpredictability:
Why Do Rates Change So Often?
Transportation rates are the cumulative result of several variables, which can make for a difficult-to-predict picture (particularly when compounded together). These are the most common culprits for surprising dips or surges in freight shipping costs:
- Freight types. Weight and density will impact freight class, which impacts freight costs.
- Carrier capacity. Supply and demand doesn’t just apply to your products — excessive need for a limited number of carriers during peak seasons can raise rates dramatically.
- Environmental challenges. Storms, blizzards, wildfires and other major natural disasters will impact the cost of shipping.
- Political and economic issues. Strikes and labor shortages often impact transportation rates.
- Sneaky Surcharges. We are firmly against hidden charges at First Call, but that isn’t always the case for some carriers looking to cash in on accessorials and chargebacks.
- Seasonality. Holidays, summer produce, changing weather — numerous factors fall under the umbrella of freight seasonality, and each plays a noticeable role in directing rates.
The good news is many of these factors follow similar patterns from year to year, making it easier for shippers to establish accurate projections in advance so long as data from past busy seasons or dry spells continues to be relevant (ie. 2020 was weird and doesn’t count). Now that we understand a few common causes of the problem, let’s discuss some solutions.
Negotiate a Contract Rate
Negotiating freight rates with carriers for a period of time provides a measure of stability. While the market is constantly changing, sometimes carriers are willing to settle on contracts with set rates in exchange for guaranteed business from a shipper. Contracts commonly range from a few months to a full year.
Contract rates will naturally grow more favorable for your business as your relationship with a carrier grows. If you don’t have an established contract for a period of time, be sure to check clauses on price contingencies. Watch out for surcharges that may come up with environmental or supply and demand changes. If rates change, be sure your carrier provides a rationale behind the rate change as well as clear end dates for any surcharges.
Diversify Shipping Modes and Routes
A shipment that once only took a few days via truckload might take a lot longer depending on the time of year (think of the New England area in the winter). Longer shipping times can mean an increase in cost. Learning the general trends of each season can help you determine which mode of transportation is most economical.
During harsh winter months, transporting by rail and then truckload might be the cheapest and fastest way to transport goods. In the summer, choosing a long-haul truck might be a better option depending on your destination. Be willing to shift the mode of transportation and route you’re accustomed to taking if it includes mountain roads in the winter or an area known for wildfires in the hot summer months.
Stock Up in the Offseason
If you have the space, aim to ship the bulk of your inventory during off-peak seasons (and if you don’t, feel free to check out our various warehousing locations). Taking advantage of slow periods will help you avoid restocking when transportation is at its most expensive and least reliable.
Develop a Reliable Carrier Network
Building a reliable carrier network takes time and effort, but it’s effort will pays for itself several times over once genuine partnerships are established. As your partners grow familiar with you and your business, they’ll be better able to anticipate potential obstacles and quickly resolve issues as they arise.
A good carrier network will support your business as well as theirs, making it advantageous for them to help you save money.
Choose the Right 3PL
Okay, this one is a bit self-serving, but it’s also the simplest way to gain access to a reliable carrier network and the industry expertise needed to avoid getting gauged in the busy season. A third-party logistics provider offers stability, reliability, capacity, options for various modes of transportation and tools to help mitigate rate fluctuations while still meeting the demands of your customers.
At First Call, those tools include an integrated transportation management system (TMS) giving our partners full visibility into their supply chains, predictive tools to manage disruptions and changes before they happen and automated processes to resolve disruptive shipping bottlenecks.
Contact First Call Logistics today to learn more about how we can help mitigate unexpected changes in transportation rates.
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Building and managing cost-efficient supply chains is a full-time job. First Call’s rare combination of in-house assets, expert problem-solving and track record of stellar customer service makes us the 3PL of choice for business partners with a wide range of shipping needs.
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