The Reality of Rising Freight Costs

We are seeing trucking companies demanding increases with old and new clients. If the shippers are not ready to comply, they get dumped. Manufacturers will notice their average rates will be much higher when bidding out freight. What in the world? Is the economic climate is so bad, that the carriers need more money to survive? 

Actually, no. Carriers, too, are benefiting from the healthy economy, but they aren't passing along the savings to you. The reality is the carriers are fat and happy, taking advantage of what we call "a capacity issue." There is a massive amount of products to be moved and not enough truck drivers to move them. Therefore carriers can pick and choose their customers...and have leverage over your pricing. Think about that for a minute. Your price points are based on several factors, including shipping costs. Here are two scenarios that come to mind:

  1. Scenario 1: Your product margins are so high that you eat the shipping costs, and an increase in freight costs would eat away at your bottom line, directly affecting your ability to control your budget accurately. I like to look at freight as a percent of sales.
  2. Scenario 2: You pass the shipping costs to your customer, and an increase in freight costs could affect your ability to retain customers.

“We have a highly volatile situation,” says John Olin, CFO of Harley-Davidson. Larger companies like Harley-Davidson are not immune to the price increases, which means Mid-sized to smaller businesses will be hit the hardest. A lot of companies have been enjoying the healthy economy and are putting money into marketing in an attempt to trigger growth. Most companies have been sinking money into digital marketing efforts; however, with an ever-changing landscape, the digital marketing route has been tough to get right. Freight expenses, for the most part, have been an afterthought because a healthy economy means more competition and more options. This is not the case with trucking companies. They are not hiring more drivers, but rather charging more for their services.

I meet with companies on a daily basis that are dealing with capacity issues. While it is concerning, there are ways to combat price increases from your carrier.

  • Know your options. You do have options.
  • Do not send a generic bid request. You will get inflated prices.
  • Do your research and get creative. You might find that you don’t need a top tier carrier for your needs, and it could cost less without sacrificing customer service.
  • Analyze your freight. Find out where you can reduce costs. It’s not always about the rates. I have never worked with a company that does everything right.

If you don’t know how to analyze your freight, I will do it for you, for free. I will give you a complete and comprehensive study of your operation, at no charge. It's our Complimentary Snapshot, and you may be surprised to learn just how much you could change and save.

Ask me anything you want to know. Just shoot me an E-mail and ask away. I would be more than happy to answer any questions you have.

Derek Sawyer
Derek@cmg.ms