Benefits achieved by close control of inbound freight include increased operating margins, improved transit reliability and reduced damage.
Some home furnishings retailers treat inbound freight as a non-controllable expense but it is absolutely manageable. Benefits achieved by close control of inbound freight include increased operating margins, improved transit reliability and reduced damage. Depending on the product ordered and its price point, inbound transportation may represent 3% to more than 10% of merchandise cost. Even more if it is a minimum charge shipment delivered by an LTL (less-than-truckload carrier).
The remainder of this article provides a summary update on the current transportation environment and tips on areas you can explore to critique your own operation.
While LTL carriers Yellow Freight, Consolidated Freightways, ABF, FedEx Freight (formerly Viking and American Freightways) etc. aren’t dominant in the furniture industry, you might be surprised at the amount of freight they are bringing to your docks. Historically they raise their rates in January, but recently moved these rate increases to August and September. This year Yellow Freight led the way on June 3rd and virtually everyone will have raised their general rates 5.9% by August 1st. Greater increases have been applied to minimum charge shipments (typically less than about 300 pounds). Many minimum charges have been raised to the $80 to $100 range before discount. In an industry where 55% to 70% discounts are common, the carriers are also insisting on much higher absolute minimum charges after discounts, claiming their costs on small shipments exceed $75. Carriers are also boosting revenues by trying to classify freight at higher rates, charging based on cubic density and a variety of other methods. This segment of the transportation market is concentrated, so carriers have more pricing power. The demise of carriers like APA in the Northeast has also been a factor.
Most discount agreements with these carriers call for a percentage discount off rates "in effect on date of shipment". In this environment, your freight percentage to cost will increase without notice. For additional control, you can negotiate a specific expiration date such as December 31st.
The carriers claim the rate increases are justified based on customer demands for faster service, higher costs for labor, computer services and particularly insurance. United States cargo theft losses are now running as much as $1 billion per month. Rate increases for insurance packages have been reported in the 40 to 100 per cent range.
Specialized furniture LTL carriers have much lower base rates and their increases have been more moderate (2-3%) and are the preferred choice. They generally operate on the "load to ride" method where shipments are picked up at the manufacturer (or distribution center for imports), taken to a local consolidation center and are then untouched until they arrive at your location. Another benefit these carriers provide is driver continuity. Often the same driver, who is familiar with your operation will pick up a load at the factory and care for it along the way. With standing appointments and good communications your receiving operation can be more efficient and the trucker will not encounter frustrating delays. Setting up an express receiving door for small shipments is an option you can employ to make it easy for trucking companies. Ultimately the carrier’s costs have to be your costs, so it is in your best interest to help them be on the way promptly.
Some FURNITURE WORLD readers aren’t large enough to purchase full truckloads but there are opportunities for non-competing regional retailers and buying group members to use the same carrier(s) or consolidators. If you are a member of a buying group, freight arrangements can and should be part of vendor negotiations. You or a transportation specialist should also carefully review freight charges added to supplier product invoices for reasonableness and how they integrate with your total program.
Truckload freight cost increases have been much more moderate, typically less than 2%. The truckload segment has more competition and there are also about 11,000 licensed freight brokers nationwide. Freight brokers estimate that they participate in 20% of total truckload volume. Many are respectable businesses while some are opportunistic and unsavory middlemen operating with little more than a phone, fax and Internet link. Evaluate your providers carefully.
With the huge imbalance between exports to the Far East and to the USA, increases of $150 or more have been seen on
non-contract import rates. There have also been delivery delays due to post 9-11, port, Canadian and Mexican border security changes. The Department of Transportation announced grants of $92.3 million to enhance security at 51 US ports. There are calls for inspections at point of loading worldwide, which has the potential for creating additional bureaucracies with doubtful results.
Increased security awareness has resulted in a nationwide program named Highway Watch where professional truck drivers are receiving safety, anti-terrorism and security training. The American Trucking Association with funding from the Federal Motor Carrier Safety Administration administers the national Highway Watch program.
Truck drivers are being trained to spot and accurately report poor road conditions, unsafe drivers, medical emergencies, stranded motorists and situations with security implications. The drivers will report incidents to a call center for forwarding to the proper site for action. Over 81,000 calls are made daily from mobile phones to 9-1-1 centers but unfortunately many provide insufficient information to direct appropriate emergency response. Participation by furniture retailers is encouraged and more information can be obtained from your state trucking association or state law enforcement agency. Even if you cannot participate in these programs, you should take action to lock your trucks and park them in secure areas.
Bottom line, there is a continuing need to monitor freight costs and service to assure that your needs are being fulfilled and you are getting solid value.
Daniel Bolger of The Bolger Group helps companies achieve improved transportation, warehousing and logistics. Questions can be directed to Mr. Bolger care of FURNITURE WORLD at dbolger@furninfo.com.