Understanding domestic freight spend can have its own complications. Businesses that scale from domestic to international or vice versa often have to experiment with a few strategies and alternatives before finding the best possible foundation to scale operations.
In this post, we’ll look into supply chain insights provided by Nick Stachel, izba’s domestic freight network handler, a subject matter expert with almost a decade of experience in logistics.
Addressing most frequently asked questions and concerns, Nick offers key tips and advice for brands to save money on their domestic freight.
The first thing that some brands have difficulty distinguishing is the difference between spot and contract pricing. In logistics, the market can be volatile and on any given day, shipments and rates can vary according to the situation around them.
And before you can think about reducing costs through better negotiations, you need to understand how and when both of these are best used.
Let’s take a look at what makes spot and contract pricing different.
What is the Difference Between Spot and Contract Pricing?
The spot market is pricing on the spot.
It’s what you’re going to pay either today, or within a week to move your freight. It is usually more volatile and you’re playing the market hoping to pay for cheap freight.
On the other hand, contract pricing means exactly what it’s called. You’ll have a dedicated partner to move your freight at a stable price.
This is more reliable than the spot approach since you don’t have service contracts on the spot market. Nick believes that in logistics, having a very strict schedule is extremely beneficial.
Therefore, when you’re thinking about contract pricing, you would like to contract it to maybe one or a few trucking companies or brokerages.
If you select the carrier-direct option, you really want to have a steady lane. A lane is any domestic distance covered from A to B.
Steady Lanes and Backhauls
Let’s suppose the journey starts from Orlando and ends in Atlanta. If you negotiate a contract with the trucking company for 1 FTL pickup on alternative days (e.g., every Monday, Wednesday, and Friday), the trucking company is going to try to find a steady backhaul.
A backhaul is the same journey in reverse, i.e., from B to A, or in this case, Atlanta to Orlando. It could also be from Atlanta to Jacksonville, where the trucker then has to drive empty back to Orlando to pick up your freight again.
This lowers the cost for the trucking company because the driver won’t have to drive empty from Atlanta back to Orlando to pick up again. Your shipment is going to drive down costs because the trucking company knows their schedule and how to plan to be profitable coming back to your origin.
The key is to keep things steady and stable. If you have a steady schedule, and a steady lane, that’s good- in terms of having a contract in place. It’s going to be picked up on time and delivered when it needs to be delivered reliably and cost-effectively.
How To Negotiate with Carriers and Brokers?
Nick says that before you go talk to someone about what you need, you’ll have to understand what’s important to your network.
What are your requirements? What equipment do you need to move your freight? Are there any special things to note about the origin or destination the carrier needs to know about?
If you want to go carrier-direct, you could search local carriers based in your area, or search a trucking board, like a DAT (Delivered at Terminal) or Truckstop to find local carriers.
All you’d have to do is mention that you have an Orlando to Atlanta-lane that happens three times a week and you’re open to pricing.
That’s all a trucking company needs; they want certainty. When a trucking company is relying on shipments, their routes aren’t packed.
They don’t really know where the drivers are going or if their drivers are going to have other loads to pick up the next day or later. So, they want to be planning their schedules out weeks in advance.
And the ability to have a steady lane with contract pricing is something that a trucking company really wants to see.
If you want to go the broker model, you would do the same steps. Figure out requirements, search brokers that fit those requirements, and start negotiating on the rates they provide.
How Should Brands Handle Peak Seasons?
Nick says that a good way to think about peak periods and regions is to consider the Uber model. For example, on a Friday or Saturday night, certain locations in a city could be surging with high demand for Uber drivers.
This increases the prices as there’s a high demand and low supply of drivers. The logistics network on a larger scale is similar to this model. During peak season, certain regions in the country can see elevated prices with high seasonal demand.
For example, in the freight market, there is a heavy spike in outbound freight demand due to the produce season in Texas to Florida during the spring months.
Brands will pay more to move their cargo out of that area since the drivers are taking more freight that they typically wouldn’t take during other times of the year.
Understanding shipping and receiving locations is an important thing for a brand to consider when planning to move your freight.
With Christmas around the corner, getting with your freight providers ahead of time and working through an ideal schedule will yield high service levels.
How Should a Brand Move Freight Around the Country?
1- Full Truckload
Nick states that the first thing people think about domestic freight is full-truckload or FTL. Full truckloads can haul about 45,000 pounds.
When you “buy a full truckload”, you are in control of the entire space inside that trailer. Since it’s not shared, you get the exclusive service, guaranteeing timely deliveries.
For a majority of the time, a FTL is operated by one driver who is adhering to their hours or service. This is a guideline all drivers have to follow which sets strict rules for driving and break hours.
Going through the FTL route is one of the quickest ways to move your freight on the ground. One singular driver can do about 550 to 650 miles a day. And FTL is most cost-effective when you fill up most if not the entire trailer.
Since you’re paying for the whole trailer, you want to make sure you’re not wasting space while staying under weight restrictions.
2- Less Than Truckload
The second option people can consider is less-than-truckload or LTL. This is a mode where you share a FTL with other customers so you’re paying for only your space inside that trailer.
This is a cheaper option when you only have a few pallets to move so you don’t need to pay for a full truck if you don’t have enough to fill it.
The problem with this method is the extended transit time that this mode incurs. A standard LTL shipment has multiple stops, multiple trucks that your cargo is on which increases the chance of having your freight damaged, or lost.
The per pallet spend is a bit higher than that of an FTL, but the ideal pallet count is between 4-6 pallets to keep that cost low for each pallet.
3- Intermodal
Finally, the last option is putting your freight on a train, or intermodal. Depending on your lane, this can be the cheapest option to move your freight, but will take the longest.
At the end of the day, you need to understand what makes sense for your logistics network. Is time more important than cost?
Every brand’s network is different but leaning on your partners to guide you to optimize yours will allow you to be the most efficient.
What’s important to remember here is the relationship you have with your domestic transportation partners.
Importance of Domestic Freight Relationships
Relationships are key in this industry. The ability to trust and lean on your providers when in a pinch is very important.
It’s hard to generate relationships on the spot market since you’ll have a new trucking company haul your freight every time you need to move it.
There are pros and cons to every option out there, but if you have a product that needs special attention, the contract route or broker model may be most effective in order to keep service levels high.
By doing this, brands can have a better way to negotiate prices based on historical workings with partners.
How to Reduce Domestic Freight Costs?
Nick says that the best way to reduce domestic freight costs is to give your providers as much time to plan as possible.
Proactivity and communication are key so you can have more time to compare quotes with your providers, and they can set pickup and delivery times beforehand with more certainty of being on time.
Times like the holiday season are excellent examples of how when the going gets tough, it all comes down to a first come first served-basis. The sooner you can get your demand forecasts to your partners, the better prepared they’ll be.
Similarly, Nick advises that brands should think hard about the ability to ship products.
Whether they’re going to do it in one FTL shipment or multiple LTL ones is entirely dependent on the type of business, product demand, or the financial situation you’re in.
Having the ability to ship more at once is important. A full truckload of, let’s just say 20 pallets that cost per pallet is going to be a lot less than having five LTL shipments of four pallets.
Also, you’ll have less of a chance to have your freight go missing or damaged when put on a controlled FTL than multiple LTL shipments.
Need Help with Domestic Freight?
Nick Stachel and the Izba team are more than ready to begin helping you navigate through your current business situations, freeing you up to focus on scaling and expansion.
We can optimize costs, provide better alternatives, or streamline your current operations in creative ways to maximize your profits.
For any and all needs related to supply chain, don’t hesitate to call Izba!
About
Having started his career as a freight broker, Nick was on the front lines negotiating with trucking companies and getting acclimated to the freight industry.
With ample knowledge of the spot and contract pricing market, Nick has a strong understanding of industry-standard accessorial charges, hours of service, and standard procedures.
Nick uses his experience to better support and manage domestic freight networks for izba’s clients.
