Penny Wise, Pound Foolish: How to Ensure You’re Getting the Best Rates for Your Shipments

Not sure if you’re getting the best deal?  Worried about spending too much on shipping if you don’t have to?

There’s more to shipping than just spending as little as possible.  Not that you want to overspend if you don’t have to – but you need to analyze your shipping needs before committing to the lowest bidder.

Case in point:

A recent client came to Diversified Transportation Services and asked us to generate a Request for Proposal (RFP) for them regarding their 1850 LTL moves each year.

We did just that and negotiated very attractive rates for them – rates that were a considerable improvement over what they’d had before.

They noticed we had a few different carrier options: some carriers had better transit times, while others had a lower price point, yet a slower transit and a higher propensity for claims.

Our client advised us how important it was to get the goods to their consignee timely and claim-free. When we made our final routing plan to the company, we took out the slower options with a higher claim ratio - understanding that they did not fall into the KPIs that this client was looking for.

The client pushed back and wanted to save the extra dollars per shipment, which amounted to $16.38 per shipment.

We spent the time discussing these options with them, noting that the cheaper option didn’t meet their original KPI spec plan.  After reviewing the information, they decided to continue with the lower price point carrier.

We told them we would evaluate after 60 days to ensure they knew what they were getting into, as after 27 years in the business, we knew exactly what would happen.

Fast forward 60 days and this is what we found in our evaluation:

Transit times slowed by 1.6 days on average for the 338 shipments as a direct result of the clients choosing the lower-priced option.

Claims due to poor handling are up, and the 11 claims so far have cost the client significantly, not only in re-manufacturing timelines, but in admin costs: speaking to clients, claim docs to be filled out and submitted to us, and the carriers, plus reshipping to the clients so they can receive the goods that they wanted.

This led the consignees to look at other vendors in regards to buying their product elsewhere. Each item has a value in the $2200 - $3400 range, representing a significant revenue loss.

To make matters more complicated, 3 of the items were delivered with a clear delivery receipt and those claims will more than likely be denied due to that clear Delivery Receipt.  That alone will cost the client around $7,000 – more than the cost of shipping the 338 shipments with the slightly higher-priced carrier.

Let’s take that math a bit further:

If we take all 1850 of their projected shipments for the year and multiply that by the slightly higher cost for the recommended carriers (due to better transit times and claims ratios), the client would pay, for the year, just over $30,000 additional.

If we take it a step further, based on their current trend of a 3.2% claims ratio (which is high) we would expect to see 59 claims during the 1850 shipments.

If 20% of those claims end up being signed for as "clear PODs or DRs”, then we can take 15 shipments and multiply that by the low-end cost of $2200 a unit.  That brings us to $33,000 in claims dollars – claims that may not be paid out due to poor documentation by the consignee.

Suddenly, that $16.38 extra cost, with a better service provider, seems worth it just to avoid the losses due to claims alone, much less the improved transit times or reducing claims entirely.

When viewed this way, it’s clear that it is cheaper to pay more on the front end and get the service you expect, rather than go for the cheap front-end option and pay more on the back end over time.

End Result: You Get What You Pay For

The client in this scenario decided to eliminate the lower-cost carrier options and switch back to the options within their KPI specs.

They’ve realized the value in a 3PL that’s working towards their needs – we weren’t recommending the higher-priced carriers for our sake but for theirs.  In the end, using the carriers we recommended stands to save them a significant amount of headache and hassle.