Transportation strategies to optimize freight expenses

Overview

Managing freight expenses is crucial in today’s volatile and COVID-constrained market. Freight expenses span the gamut from route optimization, fare negotiation, warehouse distribution, carrier and supplier management, fares and regulatory compliance. By evaluating these factors, shippers can better understand their freight operations, allowing them to establish precise baselines, identify hidden costs, and spot areas where transportation expenses could be reduced.

As freight transportation continues to change, service providers are using technology to improve and respond to supply chain dynamics. The three traditional methods of transporting goods are the use of a Transport Management System (TMS), a Transport Execution System (TES) and Managed Transport Services (MTS). Ultimately, it comes down to whether shippers want to manage their freight expenses in-house or outsource them.

Strategies to Reduce Freight Expenses

The most common application for internal management is a TMS. A TMS provides optimization capabilities across multiple modes to improve service levels and reduce freight expenses. Alternatives to TMS include TES and MTS. TES solutions are mode specific and lack optimization capabilities, but for shippers with simpler transportation needs, this is often all they need.

Large shippers with complex needs can turn to managed transportation service providers to plan and execute their loads. These MTS providers can use an in-house developed TMS. Or, if they use a standard TMS, they may qualify for a volume discount. In some cases, they may not use TMS at all in trans managed transactions, although these vendors do not have a significant presence in the market.

For each of these options, software and service providers need to clearly define the path to success. Below are some transportation strategies for the success of TMS, TES and MTS vendors.

Look to the Cloud

Software as a service (SaaS) solutions are becoming the industry standard, and this doesn’t just apply to small businesses targeting Tier 2 and Tier 3 customers. A robust SaaS solution offers the same features and functionality than an on-premise solution and can be deployed quickly and inexpensively. This is especially true during the pandemic, as more and more employees continue to work remotely. This includes professional functions that have historically been performed on site; a SaaS solution makes it possible to distribute rapid updates to all employees without the need for tedious upgrades and configurations.

Invest in the last mile

The last mile is the hardest and most expensive part of the supply chain journey. The growth of e-commerce and omnichannel should represent an opportunity for TMS providers. Currently, it only does this for a few fleet management providers. There are several reasons for this:

  • The last mile route is different from the cross country route.
  • Many retailers will rely heavily on parcel solutions or a TES rather than a multimodal TMS.
  • Other retailers will be looking at crowdsourcing solutions rather than a TMS.

The pandemic has changed the outlook for direct-to-consumer commerce, and an MSD is now an essential part of that strategy. There is still room to compete in the last mile, but vendors need to be creative to take advantage of this opportunity.

For TES providers, the growth of e-commerce will only make the last mile more important. Better ETA and better visibility of when orders will arrive is a requirement.

Real-time visibility and machine learning

Real-time visibility solutions are more important than ever. Electronic data interchange (EDI) solutions have proven insufficient to provide robust visibility. TMS providers should partner with transport visibility companies or create their own solution.

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Keywords: freight expenses, transportation strategies, TMS, TES, MTS, pandemic, ARC advisory group.


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