Often, parcel carriers announce a general rate increase (GRI) to prepare for an increase in standard fees and expenses such as fuel costs and third-party handling fees. In recent years, shipping GRIs among carriers tend to be around 3% to 5% each year. This average shipping rate increase index is a reflection of how carriers look to balance demand with capacity, but it's not always the same. This comes as industry experts expect an above-average market demand through much of 2022. According to Transport Dive, "Morgan Stanley said in an Oct. 6 report that sentiment in the trucking industry 'remains notably hot.' Industry respondents said they don't see an end to current freight conditions, and 2022 TL rates are expected to be up approximately 5.25% compared to this year." This is in line with the typical increases in costs, but it is still higher than all shipping GRIs in recent history. Assuming a 5% increase in costs and expenses is ill-advised as the actual GRI can vary considerably higher or lower than the yearly averages. Different service options, weights, volume, and locations can all impact GRI rates. These can be seen in fee increases as low as 2% or high as nearly 10%, depending on all these various factors and considerations.
Not surprisingly, the most common services, lanes, modes, and weights will usually see the greatest and most regular increase compared to those with less common options. This all is also subject to the risk of higher shipping rate surcharges to account for fuel cost fluctuations and market demand. To help shippers maintain control over increasing shipping rates and changing surcharges, this blog will explore:
Shippers are beginning to realize the immense value of their internal data to increase efficiency and reduce shipping cost in their supply chains. Business Intelligence (BI) tools are no longer "nice to have". They are a "must-have." When the market is stable and there is minimal volatility to worry about, shipping GRIs would only take place at scheduled intervals to deal with predictable cost increases and added fees related to cost of living similar increases. However, supply and demand for modern shipping and transportation services can shift suddenly and without warning, especially as e-commerce shipping demands continue to surge.
Monitoring logistics and maintaining vital business intelligence tracking can help shippers better prepare for possible shifts in market fees. Within the United States, freight transportation price increases get reported 30 days prior to going into effect. During that month, when they are reported and finalized, shippers and carriers can accept or reject the changes or work to negotiate new rates. The GRI can stay as noted, or it can be arranged at a lower rate. What cannot happen is that the rates cannot be higher than what was initially reported, even during peak seasons that fall before the next allowed rate increase window opens.
Business intelligence can have a tremendous impact on an array of transportation processes and services. Staying informed about options that are available for logistics and business management is vital for the modern supply chain, especially for shippers and transportation service providers.
There are generally three types of BI tools shippers can invest in, including the following.
Business intelligence reports are more detailed and dynamic than ever before, resulting in more productive discussions. Most BI tools can normalize and display transportation, billing, and surcharge data in visual formats that can be viewed or downloaded for easy sharing.
Managers and executives typically use dashboards to get a quick glimpse into transportation or supply chain network activities. These dashboards often provide near real-time information that allows users to identify and solve issues before they occur.
Many companies are using BI tools to highlight patterns found in historical data that might provide insight into future risks and opportunities in their supply chain or transportation networks. Predictive analysis uses real-time data-driven insights to expedite decision-making and create an agile and receptive supply chain.
By gaining insight into the activities and processes of their supply chains through detailed and actionable exception-based information, companies can now make strategic changes to their transportation and logistics operations in real-time—resulting in greater supply chain efficiency, cost savings, and operational improvements. Of course, it always helps to have a few actionable steps that go well beyond implementing a BI that are more specific, enabling faster cost reductions.
The following 15 tips can make it easier to reduce the impact of GRIs and reduce shipping costs in tandem.
One crucial aspect of lowering overall costs is focusing more resources on accounting. The cost-effective and efficient way to do this is to invest in technology that helps automate much of this process. When researching, it's essential to consider how the technology melds with existing accounting goals. Properly integrated software makes it easier to monitor shipments and helps create accrual reporting that shows budgeted-vs.-landed costs for monthly, quarterly or yearly financial reporting requirements. This naturally includes both small parcel audits and robust audits that consider all variables and helps to strengthen the entire supply chain network. In a sense, it all begins with a well-integrated tech stack that can ingest data from all systems to create a single source of truth.
Technology has advanced dramatically over the years, and even basics like SKU and barcodes have been perfect for better automation and services. SKUs and scannable barcodes are commonly found on product labels and contain vital information for logistics, tracking, and inventory management. This data can include product details, price, and manufacturer. This means retailers can automatically track, and shippers can more easily track the movement of inventory. This has been in place for decades, but with new intelligent SKU-level analysis, profitability can be significantly increased with better data collection and analysis for end-to-end tracking and visibility throughout the supply chain in painstakingly granular detail to avoid confusion throughout the network. Of course, the variety of data also implies a need to normalize compiled SKU data to ensure shippers can make apples-to-apples comparisons and not get lost in some of the slight differences that occur within each shipping lot or SKU. Together, SKU-level analytics and more visibility leads to better control over shipping GRIs and new insight into how your team can reduce shipping costs.
Monitoring payment cycles and staying on top of invoices and payment tracking is a critical part of logistics management. For shippers, it means ensuring orders are completed and paid on time. For retailers, it means managing finances and budgeting to maintain adequate inventory levels for e-commerce demands. It is also worth considering prepaid opportunities that can further streamline cash flow and available funds to acquire inventory and manage optimized shipping services. Managing transportation spend and expenses is critical for maintaining supply chain growth. Effective monitoring and tracking of the pay cycles can give shippers greater freedom during volatile and uncertain markets while making GRIs less impactful and surprising when they occur. Furthermore, the analysis of pay cycles lends itself to better management of cash flow and helps shippers know which carriers tend to have the lowest charges, which will reduce shipping cost in total. Plus, these carriers tend to get freight to the destination on time and in full, meaning a faster payday for them too.
Shipping and transportation management networks can further streamline the day-to-day processes involved with the shipping and logistics optimization. Shippers can enjoy a more augmented network with an all-in-one network setup and an easy-to-use and easy-to-access platform. Enabling enhanced shipping options and improved transportation service monitoring can strengthen the entire supply chain and improve results and profits for everyone involved. Preparing for shipping GRIs is easier when trends and historical data can be easily accessed and reviewed with optimization network management platforms.
Data collection and monitoring come in all shapes and sizes with transportation management in mind. However, the one thing that must remain regardless of the method and mode: tracking needs to encompass cross-industry metrics. Without clear metrics and a unified approach and focus, shippers will struggle to prepare for predictable GRIs. When average highs and lows remain unpredictable, the surprise rate increases make it more disruptive and challenging to manage and deal with. Data tracking and monitoring make it easier to adapt to shipping GRIs and stay on top of fees and surcharges such as ground fuel surcharges, weight limit changes, and other sudden rate and fee adjustments. Again, this depends on easy-to-understand and specific KPIs and metrics that can help your team know what's needed and where to improve.
Sometimes outside perspectives and third-party assistance is needed to stay competitive and to manage supply chain metrics properly. Consulting services from other shipping professionals and experts can provide valuable resources, data, guidance, and provisions for supply chain monitoring and operations. Getting the additional perspective and feedback highlights potential problem areas that might have gone undetected. It can also improve response times and open doors for more opportunities to improve the modern supply chain's budgeting and payment organization processes.
It is important to remember that just because a carrier has proposed rate increases does not mean shippers must roll over and accept them. Renegotiation of contracts and haggling over rates and final charges is part of the process of maintaining a competitive advantage. Carriers expect some negotiation to occur, so accepting the new shipping GRI that they propose may lead to excessive fees. Contract renegotiations must be a viable option that is always on the table. Strong and mutually beneficial contact rates keep everyone competitive and in good standing, even if you're expecting more spot freight in the short-term.
The best way to monitor and keep tabs on fees and surcharges is to maintain control over freight payments and properly manage invoices and payment records. Embracing technology and automation, along with supply chain KPIs, makes it easier to track profits and expenses while also closely watching for GRIs. Shippers can also gain a competitive advantage and maintain better bargaining power with carriers by utilizing automated processes and secure freight payment management services. It allows for faster, more reliable payment processing and helps to ensure fewer errors occur when compared to managing and processing manually. Meanwhile, it also helps alleviate some of the concerns over processing and cybersecurity associated with freight payment too.
While it is essential that shippers are good at what they do and that they ensure companies are offering the finest services to customers, it is also vital for any supply chain management team to have access to a diverse network of carriers. The more carriers a shipper has access to, the more capacity they can secure. Additionally, more carriers mean more opportunities to capitalize on short-term market surges, spot capacity openings, and specialty loads and shipments. No matter how the concept is approached, having a diverse carrier network to draw from is always a good thing, especially in times of market volatility and increasing demands from e-commerce shipping trends, where zone skipping and hub injection will vary based on the carriers' changing company trends, such as LaserShip's acquisition of OnTrac and beyond.
General ledger and payroll or accounting processes can also significantly impact supply chain logistics and profit margins. Taking advantage of advances in coding and optimization throughout each department and every segment of the supply chain can help improve overall profits and offset GRIs. Optimizing these essential processes, reducing the frequency of errors, capitalizing on claims and missed opportunities, and perfecting GL Coding becomes much easier with innovative tools and platforms. These kinds of supply chain analytics can provide valuable insight into the innermost workings of the transportation industry. Optimization is critical for supply chain managers who are looking at mitigating GRI and surcharges.
Rate increases and surcharges are going to happen. It is an unfortunate truth of the modern supply chain market that cannot be avoided. Planning for these increases by making informed estimates based on historical data, can help soften the blow of any rate increases and surcharges that do come down the line. Planning a budget with an anticipated rise in fees and expenses can make unexpected increases less problematic and easier to roll with and adapt to, no matter where along the supply chain they occur. Looking at past data and applying to short-term projects for the future is a great way to invest and plan for what might lay ahead in terms of charges and fees.
Planning for changing fees and surcharges and GRIs that are bound to occur is all well and good, but it is not enough on its own. Keeping track of changes in shipping rates and fees in real time is vital for sound logistics management in the supply chain network and with transportation management. Knowing what trends are rising and which ones are waning can help home in budgets and rate estimates. Staying up to date on market changes can make it easier for shippers to prepare, adapt to, and embrace changing surcharges and rates, no matter how volatile the market or how uncertain the local or global economy may be.
Another way to keep up with changes in the supply chain is to keep options open and viable for shipping methods and modes. Not every package needs rush priority shipping by air. Some parcels may require air transport, but others may require long-distance freight hauling by rail or even ground instead, all without risking a late delivery. This is simply known as zone skipping, and it depends on tracking timelines and visibility to reduce shipping cost across all modes and lanes to know when these changes can lead to meaningful savings.
Even with local and domestic shipping, alternative methods may be viable to save money in the long run. Utilizing zone skipping and hub injection and improved drayage management and last mile delivery services can also cut expenses to help offset GRIs that may have recently occurred or that are anticipated down the road.
Necessity may be the mother of innovation, and this is never more accurately displayed than within the modern shipping and logistics network. Supply chains that fail to innovate, grow, and adapt will eventually stagnate and fade away. There must always be innovation going on within the supply chain. New technology, tools, processes, and understanding must always be developed, embraced, and applied to day-to-day operations to ensure continued growth and success. The day a shipper fails to innovate and adapt is the day they start becoming obsolete, particularly in light of the growing demand for e-commerce delivery services.
The final step that shippers need to take to reduce the impact GRIs have on profit margins and expenses is to carefully consider the packaging and shipping materials used. Dimensional shipping refers to applying shipping rates to a load not based on the weight of the item but instead on its size or dimensions. Cutting down bulky packaging, even to save a quarter of an inch, can lower shipping costs. For a single package, that might not seem like much but saving a dollar per package can add up quickly. It is easy to see how much money could be saved by simply rethinking packaging and materials for thousands of packages that fall under dimensional shipping rates.
Rates and expenses associated with shipping and transportation services will rise and fall. Additional charges will be levied on some loads and shipments. Rates may increase at certain times of the year or when carriers' expenses increase. GRIs are normal and expected and cannot be avoided. However, their impact on the supply chain can be reduced with proper planning and foresight. Shippers should start by knowing the reality of current rate increases, and they must begin the process of data integration and use it to derive actionable insights. Fortunately, all that can be applied and utilized by modern supply chain logistics teams simply by contacting Intelligent Audit today and putting the power of technology to work to ingest, normalize, analyze, and apply data to make improvements despite higher costs.
Set up a call with one of our experts to discuss how Intelligent Audit can help your business uncover opportunities for cost reduction and supply chain improvements through automated freight audit and recovery, business intelligence and analytics, contract optimization, and more.
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