The Economics of High Freight Costs

The Economics of High Freight Costs

increased freight costs

Freight costs have increased 20% to 30% in the last year. The reasons for such a drastic increase in freight costs are due, in large part, to the greater reliance on eCommerce and the increased strain it puts on shippers and logistics companies. Other variables, such as federal rules requiring drivers to log their hours electronically, have put even more pressure on the industry.

The impact on the economy of increased freight costs is far reaching. If you want to understand the concept of the Supply Chain, and how each link affects the next, this phenomenon is the perfect example. We see an increase in buying behavior based on online shopping, this, in turn, puts greater stresses on online retailers to ship goods, which, in turn, puts more pressure on logistics companies and stretches their infrastructure… and so on.

When it comes to online retail, there is no bigger player than Amazon. And no other retailer has instigated the kinds of pressure on logistics as Amazon. In fact, it has often been rumored that Amazon wants to break out of its reliance on third party shippers and take over its entire supply chain, including last mile. The rumor exploded when, a few years ago, a document detailing “Operation Dragonboat,” their plan to become a fully functioning shipping company.

The leaked “Operation Dragon Boat” document stated that Amazon had a long term goal of moving away from logistics partners, towards shipping and delivering themselves. To that end, Amazon has made several moves in the last few years that indicate they are pursuing this goal. For example, the purchase of of its own fleet on Boeing jets and a shipping company in France.

All of these factors combined mean that shippers and logistics companies need to evolve… or risk it all.

The economics of high freight costs have a trickle down effect on all aspects of the economy, all the way down to the consumers themselves. However, in such a competitive environment, passing off costs to the end-consumer is not an option.

In order to mitigate increased freight costs (and they aren’t projected to decrease anytime soon), shippers must look to increased operational efficiency and, most importantly, recovery and process improvements.

Strategies to Mitigate High Freight Costs

Freight Audit & Recovery

  1. Investigate and recover opportunities regardless of dollar amount
  2. Automated dispute submission and resolution tasks
  3. Create systematic processes to drive and increase cost savings

Contract Optimization

  1. Analyze carrier contracts and determine cost reduction opportunities
  2. Identify areas of improvement and optimize current contracts
  3. Simplify management and reduce risk with the support of industry expert advisers

Network Optimization

  1. Identify and choose the correct shipping location based on variables such as zip codes
  2. Select warehouse location based on industry benchmarks and modeling to calculate package distribution per warehouse
  3. Consolidate warehouse and eliminate costly warehouses within your network

Intelligent Audit provides its clients with a global, all-mode transportation audit, recovery, freight payment, and business intelligence reporting partner.

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