How to control transportation expenses and the importance of benchmarking

The representation of transportation costs in large Brazilian companies is around 60% of the logistics cost. This high participation of transport in costs means that companies regularly monitor the freight amounts being paid to their third parties. A closely monitored KPI is total spending on transport, amount realized versus budgeted amount. If this indicator begins an increasing trend, the yellow light comes on with management questioning whether the amounts paid are in line with what the market is practicing.  

One of the alternatives that many companies adopt at this time is to carry out a new selection process for regular transporters. However, there is no point in an excellent process and negotiation with transporters if the other costs of logistics services and SLAs are not well aligned and are not considered in the bill. The consequence of this is an excellent contract for the freight price itself, but at the end of the month, it is discovered that the total value of the transport bill as a whole is higher than budgeted.  

and why this happens? The first signs that something is wrong is the loud “No show”. He When the transporter signals that he does not have a vehicle available for his company or simply does not show up on the agreed day and time, it is because, for him, the cost-benefit of serving the company is no longer that attractive.  

At this point, the freight contracting company is limited to basically two options: contract spot for a higher price or accept that there will be a delay in delivery. Most of the time, the choice is the first option, no matter how much more it will cost, whatever it is is better than leaving the customer in the lurch. ILOS estimates indicate that spot contracting can cost up to 25% more than the contracted value, depending on the time of year and the delivery profile.

Another important point to be mapped is the amounts spent on logistical transport services. When we talk about closed cargo transport, some of these services are: dedicated vehicle, palletizing and scheduling. The latter, in fact, is increasingly incorporated by transporters as something that is part of the freight, and is therefore not an additional service. When shipping is split, other fees are also usually applied, such as transit restriction fees, delivery difficulty fees, redelivery fees, returns fees, among others. 

Knowing precisely how much is spent on these logistical services and, above all, whether it makes sense to spend it, is of paramount importance in transport negotiations. It is not uncommon, in projects that ILOS carries out for large companies, to find deliveries leaving with less than 1 pallet in dedicated vehicles or companies that pay for palletization in volumes of less than half a pallet.  

It is also worth paying attention to whether the costs presented by transporters are within what would be the standard operating cost. Values ​​far below the should cost tend to be unsustainable. The exceptions, in general, are for return freight routes, in which the demand for the outbound route is much higher than that for the return route. Then, shortly after signing the contract, the transporter comes asking for an adjustment and that saving that you reported internally disappears. 

The ideal world is when your company, in addition to bid and should cost, you can obtain information on values ​​practiced by the market. Knowing how much the market has paid for routes and delivery profiles similar to your company increases your visibility and negotiating power. 

With these three pieces of information in hand, the freight account manager will be better informed and prepared, making decision-making and freight negotiation easier and more assertive.  

ILOS benchmarks road freight prices practiced by the largest companies in Brazil. If you are interested in participating and comparing the prices paid by your company with the prices of other companies in Brazil, I invite you to discover our Freight Panel.