Freight Cost and Knowledge Based Freight Cost Negotiations

September 21st, 2009 at 09:15am David DiSanto - DiSanto & Associates

A large portion of companies operate in the blind when it comes to negotiating transportation/rule contracts because they leave the negotiating process in the hands of a Traffic Manager, Purchasing Agent or Cost Account who may have little or no understanding of the company’s goals beyond cost containment.

Those companies that seek to elevate their Transportation Management Department by integrating it into a larger logistics-oriented or “leveraged buying group” strategy find that unless their transportation negotiators actually worked for an asset based carrier, they only see and hear an outsider’s perspective on whether they are getting the best price /service. In the game of negotiating transportation contracts, knowledge is power. The more you know about your carrier’s cost and pricing practices, the better you can negotiate a fair price.

Understanding cost drivers from a business unit perspective is only half of “freight negotiations” the other half is understanding a service providers cost.

Some of a major service provider’s cost that need to be clearly defined and understood by the shipper are:

• Minutes of down time at origin and destination
• Cubic capacity of shipments
• Handling units
• Load ability
• Density on the run
• Claims ratio
• Break bulk cost
• Lane balance and imbalance
• Miles between stops
• Fixed cost
• Sales personnel

Negotiating freight costs is an element of the micro-logistics component called transportation.  Utilizing cost accounting principles and assigning an appropriate and relevant cost will facilitate “freight cost negotiations” and satisfy the need for meaningful and proper freight rates and charges for your business.

Be ready to understand the entire impact of “freight negotiation” not only from a shipper’s perspective but also from a carrier’s needs and drive for more “balanced” negotiations and ultimately agreements.

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Entry Filed under: Functionality, General, Optimization, Outsourcing, Spend Analysis, Supply Management Best Practices, supply chain talent