Transportation is by far the most expensive part of logistics, accounting for up to 70% of a company’s total logistics costs. As truckload (TL) and less-than-truckload (LTL) service rates increase, companies are assessing their overall logistics expenses and seeking ways to cut transportation costs.
Since 2019, spot rates for dry van, flatbed and refrigerated trucks have increased on average by 57%, 46% and 50%, according to DAT Freight & Analytics. Some lane rates that experienced higher demands with less truck availability have increased as much as 150% within the last two years.
LTL rates, which typically increase about 5% each year, jumped 9% from 2020 to 2021 due to the effects of COVID-19.
This year, TL rates are expected to increase 5-7% while LTL rates rise 6-12%, according to Transportation Insight. Even though many other factors have contributed to the rate increases, the biggest factor was the driver shortage, which was mainly fueled by COVID-19. The shortage is expected to worsen through 2026 — making transportation improvements a critical focus for supply chains.
Two key initiatives can help improve efficiency and reduce transportation costs:
Management solutions. Utilizing solutions like transportation management systems (TMS) and order management systems (OMS) can help cut transportation costs by identifying and consolidating lower-density orders. A TMS provides an overview of transportation operations and allows companies to better manage these resources. A TMS can also assist with carrier selection, enabling companies to choose the best carrier based on both speed and cost.
Network optimization. Assessing and optimizing existing supply chain networks is another strong method for reducing transportation expenses and other operating costs like labor and lease rates. By positioning facilities in the right locations, companies can get closer to their customers and suppliers, which reduces transportation costs. Optimally positioning facilities can also provide more favorable labor rates and truck availability. With increased demand in e-commerce orders, having more facilities closer to customers is becoming a necessity for distribution companies.
Outlook:
Transportation rates may not come down for months or even years, but there are tools that can help reduce trucking expenses and total miles driven. Utilizing different management solutions and optimizing supply chain networks, companies can position themselves for success by cutting costs and improving service levels — which can also result in additional sales and growth.
Derrick Yim is project manager at Tompkins Solutions.
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