Freight Cost Reduction – All Eggs in One Basket?

by Mike Starling

So, the boss is pressuring you to reduce transportation operating expense. You currently use a variety of modes to meet your inbound and outbound transport needs. Would you consider an opportunity to contract with a single provider who promises you reduced freight rates on the condition that you agree to bundle your transportation mode requirements with them?

First, is this possible? Can you lump small package, LTL, truckload, airfreight, import, and export all together with a single provider? Yep, it’s possible, but consider the downside of such an agreement before you take that big leap to achieve near-term freight expense reduction.

What would you say is a transportation operator’s best friend? Service, flexibility, or reduced operating expense? Clearly all of these are desirable and would appear to be available if you did put all your eggs in one basket. BUT, consider the reality of the situation you put yourself in. Once the single-source service provider has you on board, you are literally stuck with the service level they provide via each individual mode they operate.

While they may provide excellent small-package services, the LTL and/or TL services tend to be second rate compared to their peers in the industry. While you may be getting a break on freight expense, you won’t be able to maintain a consistent level of service for your customers, and you’ll have no flexibility to seek alternative carriers that would provide better service and/or allow you the negotiating capability to pressure your single-source provider.

If you try to give yourself some negotiating clout by threatening to find a better alternative, you will be threatened in return that un-bundling any services will trigger significant freight rate increases for the other modes you continue to use. In these instances you must weigh the service cost/benefit of making such a move, and consider the negative impact it might have on your overall transportation operations, vendors, and customers.

While “all eggs in one basket” can be both a strategy and a tactic, it is not one that I would recommend, nor one I would rely upon to provide optimal service just to save a buck in transportation operating expense. If you have planned for and implemented a sound transportation strategy, then "all eggs in one basket" will not be necessary.

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