Focusing on Industry Trends for
Freight Expense
Reduction Opportunities

by Mike Starling

Freight cost reduction/savings is not a one-time, hit and run situation. Experienced shipping professionals know it takes constant monitoring of market and modal situations to be able to optimize not only ongoing budgeted freight expense, but to be aware of industry trends that can have both near term and long term impact on operational and service capability, while simultaneously reducing freight expense.

I read an article at Supply Chain Brain website authored by Bob Bowman entitled, “Intermodal Thrives, While Long Haul Trucking Dives.” I found this not only interesting but profound in that it describes an ongoing trend that savvy Transportation professionals should be picking up on. Namely, that there is a significant shift going where intermodal (both long haul and short haul) is encroaching on long haul trucking traditional market due to both cost and service advantages. This was not the case five years ago, but appears to be a trend that has significant potential to impact company long haul freight expense budgets in both the immediate and foreseeable future.

For many companies, domestic truckload had represented the largest freight expense in their budget. However things might be a-changing. As pointed out in the above-referenced article, given the improving rate and service capability of intermodal, even short haul intermodal is being given serious consideration as an economical alternative to truckload. The railroads are facing a changing marketplace, where their traditional bread and butter revenue generators (coal, for example, as the article points out) are drying up and the railroads are hungry for new opportunities and armed with available capacity.

The long haul truckers, on the other hand, are faced with growing capacity, as a result of shifts to intermodal, productivity constraints driven by the new HOS rules, (thanks to our friends at the FMCSA) and added operational cost (required electronic on board recorders, growing driver shortages, increased safety and regulatory requirements, etc.) to boot. Balancing fleet sizing and capacity vs. operating cost vs. added competition from the railroads is an uphill battle for the long haul trucking industry over the foreseeable future.

Bottom line – to optimize ongoing freight expense, pay attention to the transportation industry trends, especially as they relate to a mode that you don’t use, or use very little. ...Could pay dividends for you and your company in the near future.

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Freight Expense as a Percentage of Cost of Goods Sold