Minimizing the Impact of Roller-coaster Oil Prices

Armed with a thorough understanding of transportation cost drivers, you can leverage that knowledge to pursue the following opportunities for bottom-line savings


Armed with a thorough understanding of transportation cost drivers, you can leverage that knowledge to pursue the following opportunities for bottom-line savings:

  • Accessorial Charges — If you're commonly getting hit with accessorial charges (i.e. weekend delivery, wrong address or any of the other a-la-carte fees), now is a great time to revisit those costs with your suppliers. They may play hardball on freight rates, but this is an area where they may be more willing to negotiate.
  • LTL Tariffs — With all of your vendors working off the same tariff schedule, you can truly compare costs and weigh your options.
  • Consideration of Alternative Ports — Flexibility here will allow you to take advantage of shifting truck and rail capacity. And with some new routes coming online, you may have more cost effective routes to consider.
  • Service Level Visibility — Are mavericks in your organization running up bills by shipping next-day a.m. when it could go two-day ground? Without visibility into the premium services your company is using, you could be unnecessarily bleeding money on couriers. Try implementing a system that provides visibility into the actions of your employees and either flags or prevents unnecessary or unauthorized transactions.
  • Demand Management — Understanding what is required in order to fulfill your customer obligations also provides opportunities for savings. For instance, are your just-in-time shipments actually being rushed due to over-zealous employees? Could you delay three LTL shipments 24 hours in order to fill one truckload? If so, you have an opportunity for greater efficiency and savings.
  • Competitive Sourcing — While you can't competitively bid fuel, you may find opportunities for savings in the non-fuel components of your contracts. For instance, if you're buying a service that includes a fuel surcharge, break the charge out separately, tie it to an index that allows for fluctuation and then bid the rest of the cost of the service.
  • Fuel Surcharges — Standardizing fuel surcharges across vendors will give you a level playing field to comparison shop. And reviewing it more frequently — say weekly, rather than monthly — will give you greater insight and leverage with your shippers. Fuel surcharges are an area where carriers have leeway to negotiate. In a time of dubious cartel behavior, different surcharge tables, different surcharge pricing models and changing commission incentives for forwarders, you should be in a strong position to make your case internally if management still isn't onboard and with your carriers, who likely have excess capacity and will do what it takes to keep your business.

Aside from transportation-related cost-savings, you can pursue other spend management tactics to offset fluctuations in fuel. For example, if you find you were unable to directly combat rising gas prices last year, begin looking for savings in other areas. You can offset the unpredictable dynamic by driving cost reductions in non-affected categories of spend such as temporary labor, IT and legal services or print marketing. You may be able to reduce commodity costs between five percent and fifteen percent by, among other things, increasing the frequency of sourcing events, leveraging tools that provide clear visibility into enterprise-wide spending and streamlining the accounts payable process to reduce invoicing over-charges. These savings will help offset rising energy-related costs.

Also, be sure to watch the markets. By constantly monitoring key indices and market developments, you can proactively manage the impact of any changes on your contracts and re-evaluate them as appropriate.

Finally, keep in mind that there is no quick-fix solution for managing fluctuating commodity prices. Effectively combating their impact requires a sustained commitment on an enterprise-wide, global basis. But by implementing sound sourcing strategies and sticking to them, you can mitigate the risk for your company and lessen potentially negative effects on your businesses.

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