Are Your Freight Rates Too Damn High?

Are your freight shipping costs so high, they’re bananas? 🍌

For One Banana, a banana producer, their shipping costs were literally bananas.

In Fall of 2021, One Banana loaded 600,000 pounds of fruit from its plantations in Central America onto ships bound for the Port of Long Beach in California. 

But in the midst of the pandemic and supply chain squeezes, none of the trucking companies they worked with were able to haul them from the port to their local warehouse for distribution.

Scrambling to find truckers able to meet their last second request, they finally found one that said yes. The catch? 

They had to pay $12,000 per container on top of elevated transportation fees, and they had 67 containers at the port.

Now that’s bananas.

One Banana’s story is just one of many examples of how freight shipping costs can quickly get out of hand.

So recently I binged on a number of videos and articles discussing freight cost management, and I wanted to share the top advice that I’ve collected on managing these freight shipping costs. 

They include:

• Accounting for the hidden fees

• How to choose the right freight profile to minimize costs

• How packaging can affect freight costs

1. Account for the Hidden Costs

First, freight costs often get out of hand because so many extra charges get added on-top of the line haul rate you’re normally quoted.

Costs that can sneak into your freight costs include:

• Tolls

• Tarp fees

• Fuel surcharges

• Liftgate services

• Detention charges

• Redelivery charges

• Demurrage charges

• Customs Clearance

• Accessorial Charges

When these charges accumulate, they add up quickly and often are hard to foresee beforehand.

For example, many carriers will charge liftgate fees, which is when they need to use a mechanical lift attached to a truck to raise or lower the shipment to the ground. This is a service that can range from $45 to as much as $250. 

For shorter distance line hauls that cost ~$1,000, like from Los Angeles to Las Vegas, or Chicago to Indianapolis, paying an extra $250 for liftgate service is literally increasing the freight costs by 25%, a substantial percentage.

Unexpected delays, mistakes, inaccurate weights, incorrect paperwork, and penalties can all raise freight costs substantially as well.

In One Banana’s case, every day the containers stayed in port, they were charged demurrage fees for taking up space in the port. Since the beginning of this debacle, they had already incurred over $300,000 in demurrage charges, even when the delays were out of their control.

Takeaway

When comparing freight shipping rates, be careful to not just ask for the line haul rate, but ask for the “all-in rate” to get a sense of what the final costs will actually be. 

And make sure to account for some padding on top of the line haul rate for unexpected charges like the ones mentioned above that are almost certainly bound to happen.

2. It’s Not Just About Price, But the Freight Profile

This second piece of advice is unanimous across multiple experts, and one of the lowest hanging fruits for logistics providers to tackle: your freight profile has a significant effect on your freight rates.

When giving quotes, carriers offer different rate structures based on how the freight is being shipped. These are called freight profiles, and include:

• Full Truck Load (FTL) - when you pay per truck

• Less-than Truck Load (LTL) - when you only pay for a portion of the truck you’re using up

• Per Pallet 

• Per Carton

And more.

The mistake that many logistics providers make is to forget to optimize the freight profiles of their shipment to minimize costs.

In obvious cases, if you’re not using the full space given to you in FTL, then switching to LTL could make more sense.

If choosing per pallet is cheaper than LTL, perhaps it’s worth consolidating the freight into the cheaper profile.

This could yield more savings than rate shopping between carriers.

In other cases, mixing freight profiles could be the most cost-effective solution. 

In a paper titled, “The Vehicle Routing Problem with FTL and LTL carriers”, the authors model out shipping costs for a carrier in France based on which freight profile they chose: FTL, LTL or a mixture of both. 

It’s clear from their models that choosing the right mix of LTL and FTL shipments could reduce costs by 1/3 compared to only choosing LTL or FTL for all of their shipments.

In this case, it definitely is worth the effort for this shipper to optimize their freight profiles, as it would yield significant cost savings.

Takeaway

Consider all the different ways you can consolidate your freight into different profiles. It could be that choosing a different freight profile may yield the biggest savings.

3. Packaging Makes a Difference

The last point on reducing freight shipping costs is that the way you package your product can have a big impact on freight costs. 

This includes: 

• Making the packaging lighter

• Simplifying the freight such that it doesn’t require extra handling to load and is just fork-on, fork-off

• Shipping product in a disassembled state for assembly later

These small changes to presentation for carriers can have a big effect on freight prices. 

In one example, Walmart redesigned the shipping cases for 200 of its products, which lead to removing 727 shipping containers. They estimate the annual savings from this type of optimization to be over $2.5 million in savings.

Former CEO of Walmart Lee Scott once said that a 5% reduction in packaging will save Walmart and its suppliers $10 billion. This translates to also removing 213,000 trucks form the road, eliminating 66.7 million gallons of fuel and generating $34 billion in savings across the supply chain.

Takeaway

The packaging and presentation of the freight can have a big effect on freight costs. Consider whether your packaging is the lightest, most space efficient, and easiest to load it could be.

Conclusion

Small changes to how you manage your freight can have big impacts on freight costs. By considering:

• The hidden costs of freight

• Optimal freight profiles

• Packaging simplifications

You too can make sure your freight shipping costs…aren’t bananas 🍌.

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