Using Lean to Reduce Trucking Costs and Freight Rates

The U.S. trucker shortage has been ongoing for years. As the situation has evolved, many expect trucking costs to increase as freight service providers work to adapt to the new challenges that come with managing, retaining, and recruiting staff. To withstand these high costs, businesses can turn to efficiency measures within the supply chain to reduce expenses in the areas they can control. Adopting lean logistics operations can lay the groundwork for this kind of growth.

The Costs of the Trucking Shortage

A study from the American Transportation Research Institute found that driver wages and benefits have been increasing since 2012. From 2012 through 2017, driver wages increased by 33.6 percent, climbing to approximately 56 cents per mile. As a result, driver wages represented the largest cost center for trucking companies for the third year in a row.

The high costs created by the trucking shortage are trickling down through the economy. A Business Insider report explained that, as of November 2018, major brands had increased prices in response to trucking issues. Similar moves are expected in 2019, with industry pundits expecting freight rates to climb beyond record highs in 2018 moving forward. Salary hikes are also an issue. For example, Walmart recently increased trucker pay rates to nearly $90,000 per year, the Los Angeles Times reported.

While the situation sounds dire, it isn't all doom and gloom. In our work with shippers and carriers, we've seen a downward trend in contract rates for some modes and markets. In general, large asset and intermodal providers are maintaining a strong hold on pricing, but the situation hasn't reached the point of an emergency. We're also seeing some softening in freight rates and declining spot rates. Improving efficiency in loading and unloading can provide flexibility for carriers and reduce costs. We also recommend brands work to take advantage of beneficial spot rates.

Responding to High Trucking Costs

Most businesses can't do much to directly combat the high costs becoming more common in the industry. If you're working with a shipping partner, they are probably defining what you need to pay based on their cost demands. If you're going straight to carriers, they're likely adjusting prices to deal with the trucker crisis. You may be stuck spending more on shipping and freight, but that doesn't mean you have to pass that cost on to the customer.

If, for whatever reason, simply raising prices isn't an option for you, you can instead enact efficiency measures across the supply chain to improve processes and cut expenses that you can control. Implementing lean methodologies can be instrumental in this process, and enterprise logistics partners can help you go lean in a cohesive way that drives return on investment. Ultimately, going lean can empower you to become more flexible in how you operate. From there, you can constantly adjust to carrier needs to become a preferred shipper.

Going Lean to Combat Expenses

freight rates

Lean methodologies are built around operational philosophies originally developed by Toyota in Japan. They are aimed at identifying operational waste that leads to avoidable costs. From there, your teams implement a blend of technology, resource allocation, and process changes to create a stronger operational climate. Ultimately, going lean can take a lot of the ups and downs that come with a typical business and create consistency and predictability.

For example, lean logistics management principles are often applied to inventory management. In practice, inventory is a liability. Any item sitting unused can, at worst get lost, be stolen, end up damaged. At best, it is taking up space costing you in real estate and human resources to move an item from one location to another. In many cases, a business can end up with forecasts and production schedules that don't completely align, leading to excess inventory either in raw materials or produced goods, all losing value or costing money.

This kind of inventory volatility turns your entire supply chain into a rubber band. After a big production run, you may have excess goods to ship, leaving assets in storage and a shortage of raw materials. conversely, during a low production period, you could be left with too many raw materials crowding your warehouse, creating potential waste. When adopting lean logistics operations, you avoid these situations by:

  • Gathering and analyzing large quantities of data from across the supply chain to create stronger predictability and transparency.
  • Implementing software and IT systems to ensure stakeholders have visibility into everything from supplier relations to financial accounting to streamline communication and optimize operations that cross lines of business.
  • Identifying areas of inefficiency that can be addressed with minimal disruption and then gradually dig deeper into lean as value is created.

These gains can be achieved by blending lean operations with information-based tools and other operational efficiencies.

Enacting Lean Measures

Ultimately, a lean project is a journey. It often takes between two or three years to go from initial value to permanent benefits. It can be an expensive and demanding initiative to take on. Where leading enterprise logistics partners like Transportation Insight create a difference is by making lean accessible. For example, our lean experts will work with short, concise scopes of work. They identity value opportunities and pain points and work with you to solve them quickly and in a defined term. From there, they measure the returns and make tweaks on an ongoing basis while moving toward the next scope.

Taking this iterative approach to the lean journey makes it more accessible in general, but also allows you to take advantage of immediate cost gains. In light of the trucking shortage and corresponding costs, a lean journey can set you on both a short- and long-term path to resiliency to withstand pricing changes while driving customer experience gains. As a result, you can work to become a preferred shipper by aligning your capabilities with carrier needs, further reducing costs. Reach out today to learn more about lean operations and how we use them to drive logistics gains.

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