How to Reduce Logistics Cost on Transportation

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Containerization, the boxes that standardize shipping
Containerization, the boxes that standardize shipping (Image: container image by Marcus Scholz from Fotolia.com)

The logistics industry is a dynamic and very fluid market where prices can change every week. Pricing in logistics is a combination of understanding the traditions of the routing used, the research put into the negotiations, and the timing of the negotiations. In order to obtain the best logistics costs, take into account the good faith of a long term agreement, the scale of your operations and move, and the priority of the move (transit time versus price).

Things You'll Need

  • Phone
  • Email
  • Notebook

Determine what you need to ship and determine the mode you'll use. For example, if you need to ship information/files/instructions, then use email. If shipping documents, utilize mail or courier service. If you're shipping perishable or time sensitive goods in bulk, consider using air freight. If you're handling large amounts of durable goods, consider using containerized shipping.

Different shipments, different means
Different shipments, different means (Image: boxes image by Adkok from Fotolia.com)

Plan for your projected needs for at least one year. Logistics providers base rates and rate agreements on either an immediate shipment basis (within 30 days), or based on a one-year agreement. If there is a large volume of shipments, it's possible to prepare a bid that could warrant special terms and conditions.

Solicit quotes from any vendor which can accommodate shipments. For small shipments less than a container, contact freight consolidators/brokers. These entities are also known as NVOCC (Non-Vessel Operating Common Carriers). For full container loads, also contact carriers/VOCC. There is no issue in the industry for requesting rates from every vendor available.

Analyze quotes and read the terms/conditions of the quotes. Check the validity of the quote (Is it for a particular sailing, a month, a year?) and what surcharges it's subject to. Check if there are any value-added services available such as extended demurrage (time at the pier/airport), detention (time to keep the container), credit terms or volume incentive discount. Also ask if rates are subject to general rate increases, new surcharges, war risk or terminal handling charges.

Read the fine print of quotes, which may be filed elsewhere
Read the fine print of quotes, which may be filed elsewhere (Image: firma contract 20309 image by pablo from Fotolia.com)

Compare and counter offer the rate levels you were provided. NVOCC may offer lower rates than those offered by VOCC. Within reason, negotiate for rates slightly lower than the lowest submitted bid. On a periodic basis (every week for airfreight, up to bi-monthly for seas shipments), solicit for quotes again.

Confirm that rates are filed in either a contract or in a governing tariff and regularly check the terms of the filing. In markets where rates can constantly shift (Europe-Asia Trade for example), press for sales representatives to honor the rates quoted for at least 30 days.

Tips & Warnings

  • All U.S. related shipments must have rates on file with entities licensed by the Federal Maritime Commission. Check a potential contractor by looking up their OTI listing at fmc.gov
  • Logistics rates can also be negotiated by a strong personality, who can lower rates by continually pressing for one vendor to yield, and then communicating how said vendor is supporting that rate level to other vendors.
  • Transit times are not guaranteed
  • Transportation quotes do not include any customs related charges

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