The dramatic increase in fuel costs this year is a constant reminder of the importance of cost management for transportation managers. Negotiating is still the favourite tool for many, but periodic negotiations may not adequately address the impact of cost-creep. For example, carrier rate agreements may be negotiated for a set period of time but rising fuel surcharges, ancillary charges and unforeseen costs can further impact total costs.

When people ask me how they can reduce transportation costs they usually qualify that question by saying they have already done some form of negotiating and can’t understand why their total costs continue to increase. That’s a common problem and it underscores the importance of monitoring costs on a regular basis. The best way to do that is to implement some form of regular cost evaluation program with visibility into the various cost elements.

A report on total costs does little more than confirm whether or not you’re meeting budget expectations. But in order to control costs adequately you have to know what they are, so what’s “in” the report can be just as important. If you’re not doing it already, now is the time to start meeting with your company’s IT group to identify the potential for meaningful cost reporting. Since fuel surcharges are the most visible element of transportation expenses for senior management, that’s a good place to start. Find out if its possible to break out fuel surcharges from your overall transportation expense.

Segmenting transportation expenses can reveal some interesting data since fuel surcharges can vary by a host of factors, including carrier, mode, shipment size and destination. Having the ability to identify actual freight expenses vs. fuel surcharges can be helpful during discussions with carriers about cost control, not just rate negotiations. And let’s not forget that every discussion with carriers about fuel surcharges need not be adversarial. Carriers are affected by rising fuel costs too and are very aware of the impact this situation is having on carrier-shipper relationships. It’s not unusual for carriers to have better reporting capabilities than their customers in terms of the customer’s shipping patterns – use that relationship to your advantage by asking your carriers for reports on your shipping volume. Carriers can be a great source of information and will undoubtedly see it as an opportunity to provide a value-add component to your relationship.

Greater visibility into cost elements can also be helpful in reviewing “how” your company ships its products. If you start with the premise that you can’t do much about rising fuel costs, think about other areas in your company’s operation that may have been overlooked. For example, are there opportunities to improving the weight to cube ratio by revising product packaging? Has your company considered revising its shipping terms of sale (FOB/Incoterms)? Are you making the most of consolidation opportunities? Have you asked carriers to advise of any backhaul opportunities that might be appropriate in your shipping lanes? If your company extended its supply chain by importing from low-cost labour countries, review your total landed costs in the past year compared to the costs of relocating sources of supply closer to home. Sadly, an often-overlooked source of information can be your customer; developing a survey incorporating customers’ needs for cost control information can enlist their cooperation in developing ways to better handle shipping requirements (i.e. frequency, order size, return goods shipments, etc.)

Now for some good news - that’s just for starters. There may be other opportunities for reducing costs (or improving service) by examining warehousing services, cargo insurance policies, forecasting methods, the impact of new security regulations on transit times and customs/trade compliance issues. And the really good news? Improvements in many of these areas will have cumulative net-dollar value since the savings carry forward.

I started this blog suggesting that transportation managers meet with their IT departments but there are a lot of other internal stakeholders that transportation managers should also be communicating with, including production, sales, purchasing, inventory and warehouse management. Open and frequent communication with these groups helps to ensure that everyone in the organization is aware of the challenges faced by transportation managers in order to protect the company’s competitive position in their marketplace.