RESEARCH BRIEF
Inbound Freight Costs are Rising. What are logistics managers doing to better manage costs? INBOUND LOGISTICS IS A COMPLEX PROCESS that can consume more than 40% of the average organization’s annual freight budget, according to Aberdeen Group, which estimates that total inbound freight spend alone consumes between 3.6% to 5.2% of a firm’s total annual sales. Due to inbound freight savings’ direct impact on the organizational bottom line, shippers that make it a supply chain priority reap significant inventory efficiencies, better cost containment, and a higher chance of achieving productivity and service goals. As customers’ service level expectations and practices, and transparent pricing structures. demands continue to expand and change, Effectively reducing costs requires a inbound product flow is becoming increasingly combination of logistics expertise, proficiency, complex. In search of new ways to manage technology, and automation. shipping costs, more companies are turning to inbound logistics management providers To help companies better understand the for support. By ensuring an efficient and cost- challenges and opportunities associated effective flow of goods and information across with inbound freight management, Peerless multiple entities, these providers manage Research Group (PRG), on behalf of Logistics the transport, storage, and delivery of goods Management and PLS Logistics Services, a coming into a shipper’s location and contribute leading third-party logistics solutions provider, to the development of comprehensive supply surveyed 267 top logistics and transportation chain management strategies. managers who are responsible for their figure 1 organization’s transportation and/or inbound Nature of inbound shipments freight management. The research in this paper examines organizations’ inbound freight Less-than-truckload (LTL) 74% practices, the challenges supervisors face in managing their inbound operations, and how Truckload (TL) 70% inbound processes are best managed. Small package 64% Challenges in managing inbound Ocean 46% freight operations Air cargo 39% Our research shows that organizations expect to spend, on average, $65.4 million on Intermodal 34% transportation, freight services, and equipment Flatbed 26% during the upcoming year. Companies expect to handle an average of 34,000 inbound Rail 21% shipments each month, and then distribute those goods across multiple transportation As a leading cost element within the supply modes. (See Fig. 1) chain, transportation is coming to the forefront of shippers’ cost reduction, efficiency, and operational excellence strategies. Focused on the procurement and movement of raw ® materials, inbound freight management is facilitated by real-time freight tracking, transportation optimization, good routing
1 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
figure 2 Consequently, even highly successful inbound Greatest challenges related to inbound freight operations freight operations are likely to encounter their fair share of challenges. In particular, cost containment and management, attaining 42% Controlling costs greater visibility and shipment tracking, and improving process efficiencies are the major 37% Determining hidden costs issues on which logistics managers are 35% Lack of visibility focused. Other key challenges include the need for better shipment status notification and data 33% Actual transportation cost analysis by lane and mode analysis/decision support, a lack of automation, and the fact that related processes are not 32% Shipment status information streamlined. (See Fig. 2)
25% A lack of automation Transportation costs are a major supply chain expense 25% Data analysis and decision support Right now, freight cost hikes are plaguing a wide swath of companies that rely on carriers 21% Streamlining processes to get their goods to market. While about 20%of companies are seeing freight costs 17% Market rate analysis by lane, mode and equipment type recede (perhaps due to the current low fuel costs), the larger percentage is dealing with 16% Multi-carrier parcel shipment management inflating transportation expenses. In 2015, approximately one-half (51%) of shippers saw 16% Supplier performance KPIs inbound freight operation price increases, and nearly one out of three saw no change. Looking International trade management and 16% ahead to 2016, the forecast is comparable to understanding regulations last year. (See Fig. 3) Vendors pay for freight and will not honor 16% my carrier requests
15% Multimodal carrier/route optimization
Vendors take multiple figure 3 shipments to fill a given Changes for inbound freight costs in 2015 and 2016 order. Vendors ship from multiple origins 51% 48% to fill a given order. Vendors ship from secondary or even a third DC when orders are collect thus it costs Increase us more in freight. VP, General Manager; 29% 30% Warehousing services; The same $250M - $500M
Shippers are changing 22% freight classes after 20% Decrease shipment or there’s constant re-weighs resulting in additional 2015 2016 unrecoverable costs. Purchasing Management; Automotive and parts; <$50M
2 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
We have a problem figure 4 with visibility on Areas in which costs are increasing inbound shipments, especially from international Base rates 57% locations. We also have problems Increase in inbound freight charges from vendors 48% with consistency in Assessorial charges/Charges made for performing freight services receiving pre-alert 39% beyond normal pickup and delivery information for pre- clearance entries Premiums for expedited shipments 33% through Customs. Logistics/Distribution Initiatives to gain greater cost control 15% Manager; Paper and printing; $1B - $2.5B Investment in systems 15% We want to be able to accurately Other 9% determine freight costs on inbound shipments prior to Among the shippers that are seeing their Managers evaluate their organization’s freight shipment— inbound freight costs climb, freight base rates inbound freight operations surcharges, etc. and other vendor charges are affected the To manage their inbound freight, 53% of Logistics Manager; Retail; most by the increases. Inbound freight charges shippers use in-house staff and 21% rely on $500M - $1B from vendors, assessorial charges and those third-party logistics providers (3PLs). And, 11% made for performing additional freight services of companies work with their suppliers/vendors (beyond normal pickup and delivery), and for this aspect of freight management and 7% premiums for expedited shipments are also of firms rely on their purchasing departments rising. (See Fig. 4) to handle these activities. (See Fig. 5)
figure 5 How companies are handling inbound freight shipments
We manage it/In-house staff 53%
Use a 3PL 21%
Vendors/Suppliers managed 11%
Purchasing managed 7%
Other 8%
3 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
We use a controlled figure 6 release process and Rating their organization’s inbound work with your 3PL to move by best means transportation management process based on end user needs. Materials Manager; Excellent 4% Refinery; $100M - $250M Very good 32% We watch the product shipments to us and Good 44% compare current costs to last shipment costs Fair 19% for the same shipments from the same vendors. Poor 2% If the freight rates go up past a certain amount, we look for a new freight forwarder. We Perhaps as a consequence, many of the When evaluating their inbound freight also look at all incoming shippers we surveyed admitted that their processes on key indicators, managers raw materials and inbound operations are in need of improvement generally rate their operations as being inspect for damage. So on some level. In fact, only 4% claim “average” at visibility and tracking, meeting far, so good! their inbound processes are “operationally delivery schedules, technology utilization, and President; Medical Devices; excellent.” And, while the majority of their ability to manage costs and processes. <$50M companies rate their inbound freight practices While managers do claim to be reasonably as adequate, a full one out of five companies successful in meeting delivery schedules, Availability of complete (21%) feels these processes are fair or even many further admit that their operation is and accurate inbound information provides poor. (See Fig. 6) “less than proficient” at attaining supply chain significant opportunity visibility and shipment tracking capabilities, to match labor to work and at leveraging technology for process and assist load planning. improvement. (See Fig. 7) Industrial Engineer, Principal; Transportation/ figure 7` Warehousing; Rating areas of their current inbound freight operations $2.5b in annual revenues 10% 29% 32% 23% 6% Tracking information
7% 36% 39% 15% 3% On-time delivery
6% 26% 42% 21% 5% Ability to manage costs
6% 25% 35% 26% 8% Visibility
5% 25% 31% 28% 11% Tools and technology
4% 31% 39% 21% 5% Control over processes
Excellent Very good Good Fair Poor
4 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
Our priorities figure 8 are centered on Level of control operations hold over inbound freight management consolidation and optimization of network, implementation of TMS We fully control the process 33% systems, and securing trucking capacity. Director of Logistics; We somewhat control the process 52% Warehousing services; $2.5B+ We have some but not much control 14%
We have no control at all over the process 2%
figure 9 So, it’s interesting to see that while Aspects of inbound freight operations that need improvement managers consider their inbound freight processes to be acceptable, many continue 55% Acquiring the best rate per shipment to manage these operations on their own. (See Fig. 8) 38% Track and trace capabilities According to survey respondents, the 37% Ensuring the best rate for each shipment inbound freight operational areas that need 33% Load optimization, consolidation, pooling, etc. the most improvement include acquiring the best rate for shipment, track and trace 30% Automated logistics execution capabilities, and ensuring the best possible rate for each shipment. Other key areas 30% Inbound carrier KPIs/Scorecards of concern include load optimization, consolidation and pooling; automated 29% Freight rate procurement/contract negotiations logistics execution; and inbound carrier Electronic communication (e.g., EDI, XML) key performance indicators (KPIs) and 28% with customers and carriers scorecards. (See Fig. 9) Carrier rate negotiation and monitoring of 28% safety, insurance and performance 26% Vendor compliance management
24% Claims management Inbound shipment planning 24% (flatbed, LTL and van) 22% Dock scheduling
21% Expediting and event management
20% Freight invoice audit and payment
19% Supplier collaboration and origin management
18% Standard and customized reporting Integration of inbound transportation 16% applications with other systems
5 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
Recognizing the problem . . . Nearly all organizations (98%) are undertaking initiatives to improve their inbound freight management processes. (See Fig. 10)
In particular, shippers are: • collaborating with their carriers to renegotiate rates; • establishing performance metrics for carriers; • reducing the number of providers they partner with; • consolidating shipments; and, • upgrading invoicing and payment procedures.
figure 10 Actions taking to better manage/control your inbound freight processes
Taking action (net) 98%
Renegotiating freight rates 57%
Consolidating shipments 52%
Keeping close track of invoicing/payments 44%
Working with fewer partners such as carriers and forwarders or 3PLs 42%
Adopting KPIs/Performance metrics for carriers 27%
Improving knowledge of customs and clearance issues/ 26% Regulations compliance
Improved reporting capabilities such as business intelligence solutions 25%
Using more local or regional sources/reducing imports 17%
Collaborating with other companies that are closer to our customers 12% (even if limited to certain SKUs)
Using more rail, including piggyback/TOFC/COFC 10%
Other 5%
Nothing 2%
6 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
We are looking to Technology adoption continues to lag And while between 19% and 31% of those mainly use one freight As previously highlighted in this research, firms surveyed plan to automate specific line for product. This the adoption of technology for inbound inbound activities that aren’t currently will make it easier to freight management is gradual, if not lagging. automated, the largest percentage of control where they are Curiously, many companies have chosen not to companies presently do not have plans to and hopefully get lower automate inbound freight management. While employ technology. Tasks least likely to be prices. freight auditing, rate information, and shipment automated include monitoring of fuel rate Purchasing Manager; Food & Beverage; $100M - visibility are the most commonly automated changes, routing and carrier usage and options, $250M processes, alarmingly small percentages— transportation procurement, load optimization, fewer than one out of three in each case—have and contract management. (See Fig. 11) We will be migrating automated these particular tasks. all carriers’ tracking
and shipment data figure 11 into our global visibility platform. Tasks are currently automated/planned for Distribution Manager; future automation/no plans to automate Paper; $1B - $2.5B Freight audit and pay 33% 22% 35% 10% We are continuing to automate internally: Rate databases 31% 24% 32% 13% We created software in our intranet that Shipment visibility 31% 31% 28% 10% tracks our inbound ocean freight, but we Fuel charge adjustments/ need to improve the changes to carrier accessorials 27% 20% 42% 11% rail data collection Logistics execution and then the local (booking/tendering) 25% 24% 38% 13% cartage companies don’t have any sort of Routing and carrier selection 24% 23% 44% 9% automation—it is all Transportation done manually over 23% 23% 43% 11% the phone. That has to procurement/tendering improve as it is taking Routing guides 22% 23% 39% 16% too much of our time. VP, General Manager; Automotive and Contract management 18% 19% 53% 10% Transportation Equipment Manufacturing; <$50M Reporting and KPIs 15% 29% 37% 19%
Load optimization 12% 25% 45% 18%
Now Not currently No plans Not using but automated automated to automate have a need but will be
7 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
figure 12 Adoption of transportation management Organizations running metrics for inbound freight costs systems (TMS) Only one out of three operations currently uses a transportation management system; and, of these, 8% expect to upgrade their TMS in the upcoming year. Additionally, while some are Yes 54% in the process of installing a TMS (11%) or are evaluating a TMS (12%), nearly one-half (44%) No 46% do not have plans to adopt at the present time. (See Fig. 13)
Those companies that are presently operating a TMS or planning to use one in the future are split on the preferred method of deployment. While four out of 10 managers (40%) opt to Just over one-half of the operations surveyed host their TMS, one out of four (26%) favor (54%) run metrics to help manage inbound running their TMS as a cloud-based application. freight costs (See Fig. 12). The top indicators And, 34% of companies are open to either being measured includes spend by carrier and deployment method. volume (71%), costs by routes/lanes (68%), and on-time performance for shipping routes/ lanes (61%).
figure 13 Organization’s status regarding TMS
Currently using a TMS 25%
In the process of implementing a TMS 11%
Presently evaluating TMS for implementation within the next 12 months 12%
Planning to invest/upgrade our current application some- time during the next 12 months 8%
No plans to run/evaluate at present time 44%
8 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
figure 14 Organizations using a 3PL for their logistics or transportation functions
49% 38%
13%
Yes, Not at present but are No plans at present currently outsourcing considering or will be considering within the next two years
Employing a third party to manage Tasks that are either now commonly inbound operations outsourced or that are likely to be farmed out Roughly one-half of the businesses surveyed include inbound and outbound transportation (49%) outsource their logistics and/or and freight forwarding operations. Other transportation management functions. Of the transportation-related tasks that shippers remaining shippers, 13% are considering a 3PL outsource (or, want to outsource) to a to manage these tasks while slightly more than 3PL include freight audit and payment, one-third (38%) have no immediate plans to warehousing, cross-docking, and inventory use a 3PL. (See Fig. 14) management. (See Fig. 15)
figure 15 Tasks (currently or considering) outsourcing to a 3PL
46% Inbound transportation 38% Freight-forwarding 34% Outbound transportation 30% Freight audit and payment 29% Warehousing 25% Cross-docking 15% Inventory management 15% Technology 11% Packaging 9% Entire supply chain operations 11% Other
9 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
figure 16 Benefits gained through better inbound freight management
Reduced inbound transportation expense 71% Improved on-time deliveries 53% Better inventory management 45% Administrative efficiency 38% Less handling and damage, efficient receiving 38% Proactive notification of disruptions 36% Increased customer satisfaction 35% Reduced inventory carrying costs 32% Other 4%
Efficient inbound freight management Conclusion practices yield favorable results As evidenced by the Logistics Management With inbound freight consuming such a research and the emerging trends in high percentage of the typical shipper’s transportation, inbound freight management transportation budget, and with the complexity should be a core focus for shippers of all of these processes increasing, both shippers sizes and across all industries in 2016. The and customers alike stand to benefit from challenges of managing these efforts internally effective inbound freight management. Cost is clear, but the benefits associated with good control over inbound processes and better inbound freight management techniques range inventory management are just two of the from reduced expenses to improved on-time primary benefits that can drive customer-facing deliveries to better inventory management, to improvements such as on-time delivery and name just a few. advanced service levels. Other benefits include better administrative efficiency, less product As more shippers strive to gain better control handling and damage, and access to proactive and oversight with this aspect of their notices about disruptions and related issues. transportation operations, third-party logistics (See Fig. 16) providers will continue to help “fill the gap” through streamlining and automation of inbound freight processes.
10 INBOUND FREIGHT COSTS ARE RISING. RESEARCH WHAT ARE LOGISTICS MANAGERS DOING TO BETTER MANAGE COSTS? BRIEF
Methodology About PLS Logistics Services The research in this brief was conducted by PLS Logistics Services is a leading provider Peerless Research Group on behalf of Logistics of full service transportation management Management for PLS Logistics Services. and technology services for shippers across This study was executed in December of all industries. PLS handles millions of loads 2015, and was administered over the Internet annually across all major freight modes: among subscribers to Logistics Management flatbed, van, LTL, rail and barge, air and ocean. magazine. Respondents were qualified for The PLS carrier network consists of more than being involved in decisions related to their 20,000+ trucking companies along with Class-1 organization’s transportation and/or inbound railroads and major barge companies. PLS freight management operations. Results of this improves transportation processes through the research are based on information provided by development of inbound freight management. 267 executives who are logistics or distribution The company has discovered that clients who managers (27%), top corporate executives engage in an inbound transportation strategy (26%), transportation managers (13%), are rewarded with significant cost savings, supply chain managers (7%), and operations more visibility and improved processes. managers (6%). Roughly two-thirds of those in this study are employed in manufacturing Contact Information: businesses that includes food and beverage, To learn more, visit www.plslogistics.com. computers and electronics, pharmaceuticals, To contact an Inbound Freight Management and automotive and parts, etc. Wholesalers Specialist email [email protected] and retailers are also included in the study. This or call 888. 814. 8486. research encompasses businesses of all sizes.
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