Best Practices to Manage International Freight Spend
Many companies have switched operations to low cost suppliers—only to find that higher than expected transportation expenses outweighed the benefits. In fact, the logistics costs associated with operating a global supply chain can be 6 to 11 percent of revenue, roughly three to five times more than a domestic supply network.
A recent AberdeenGroup report, "Supply Chain Visibility Excellence: Mastering Complexity and Landed Costs," found best-in-class companies to be 48 percent more likely than the industry average and 2.8 times more likely than industry laggards to automatically track landed costs. As a result, best-in-class companies' increases in total landed costs were significantly lower than the other two groups, with best-in-class companies experiencing only a 1.3 percent increase in total landed costs, compared to a 3.9 percent increase with the industry average and a whopping 14.1 percent increase with laggards.
Here are some steps you can take to manage the growing complexity of international supply chains and their associated increasing transportation costs.
1. Centrally manage contracts and amendments of approved carriers.
Due to its complexity, entering global markets requires that both shippers and logistics providers automate their sea and air freight moves. Yet many importers today do not have a formal solution to manage international transportation. Similarly, a domestic transportation management solution is not oriented to handle the intricacies of international freight moves.
Establish a system where all contract terms—with up-to-date rates—are accessible from anywhere in the world. Using role-based access, a centralized system ensures that everyone is using an approved carrier and always working with up-to-date rates, enabling you to make better shipment decisions throughout your business and with other divisions and business partners.
Ultimately, a centralized system will allow you to operationally capture your sourcing savings throughout the year, resulting in greater savings over time.
2. Keep track of your assessorials, arbitraries and inland freight charges.
Can you imagine trying to book a flight from Hong Kong to Boston by only knowing half of the cost of your ticket with any certainty? For many, the base freight rate that is negotiated and memorialized in the contract is a fraction of the total cost. Even carriers can make mistakes and mis-rate a bill.
A rating engine allows you to monitor the carrier's governing rules tariffs and fluctuating rates from accessorials, such as fuel adjustment factors, and assists in calculating a complete bottom-line rate. In addition to your specially negotiated business rules, your system should be able to track tariffs from multiple sources and with diverse formats.
3. Optimize carrier selection prior to booking.
Your system should enable users to quickly and easily define their requirements—date, origin and destination—and rapidly access all contracted rates to optimize carrier selection before booking. Determining all available routes under contract and comparing costs is nearly impossible with spreadsheets. Instead, to access these rates, you need a powerful search engine that can find all feasible routes and service options, including transshipment points, under contract and allow users to compare costs inclusive of all assessorials and features side by side. Making better decisions using automated tools can have a substantial impact—up to 10 percent of the total bottom-line cost.
4. Audit and correctly pay freight bills-of-lading.
The same rating engine used to optimize carrier selection can be used to efficiently and easily audit a bill of lading's service parameters. The audit should be performed according to your contract, including all published amendments and all applicable tariff rates, such as rapidly changing fuel and security assessorials.
Once the bill has been rated and a bottom-line total calculated, you can quickly determine if the variance is 'out of tolerance' and the reason for the discrepancy. The information can also be shared with the carrier so they can quickly reconcile the error, reducing the cost of handling invoices and speeding up the approve-to-pay process.
Finally, with the collected operational metrics you can establish goals for your carriers and track delivery performance, invoice accuracy and shipped vs. quantity commit. Over the course of the year, these performance metrics are available to support continuous improvement programs and ultimately to feed back into the sourcing solution as a non-price attribute, allowing you to quantify the value of premium service.
In short, supplier costs are only part of the picture to achieve low cost sourcing. By centralizing systems and using technology to increase efficiencies and reduce errors, you can accurately manage your international freight spend and avoid surprises.