Know Your Rates!

Many of the logistics contracts that we sign today are very complex, contain multiple services and a multitude of lanes. We know that we have achieved a certain percent of cost-down over the last contract, but, many times, the details of the deal escape us and our team.

As we move to the implementation mode, those contract details may be the key to further savings opportunities that you didn’t know existed.

It reminds me of the children’s book series: Where’s Waldo.

The deal you just signed (or inherited, if you are new to the job) contains a myriad of base rates, surcharges, transaction fees, stepped pricing matrices based on cargo weight.

To find an opportunity for savings is like finding Waldo in the beach scene below!
LWL035 Waldo

One opportunity that we discovered was the difference in transporting containers from Europe into the port of Houston. At first, we thought it was an incorrect rate that we had received, but after checking with our sales representative at the logistics company, we realized the difference was deliberate and due to the need to reposition 40-foot containers back into Houston.

Here’s what we found after reviewing the rates internally:
The cost to move a 20-foot container from northern Europe to Houston was $2,475.
The cost to move a 20-foot container from northern Europe to Houston was $2,450.

That’s right, it cost $25 less to move twice as much stuff (another 20-foot container!) from northern Europe to Houston!

That opened up some opportunities for real cost savings.

We reviewed our orders into Texas and the surrounding states, which discharged at other ports and developed a strategy to take advantage of the half price transport from Europe to the U.S. Gulf states.

We only found this opportunity by having a detailed understanding of what we were being billed for and why. Be sure that you and your team understand your rate structure as good as (or better than) your logistics service provider.

While investigating this phenomenon, we found that about 20% of total container flows at sea are empty and the costs of repositioning are about $400 per container for the ocean carrier.

Apparently, the positioning of empty containers is one of the most complex problems concerning global freight distribution.

You can also find reduced rates by using “non-operating reefers” (a.k.a. “NORs”). These are empty refrigerated containers that need to be repositioned back to where they are needed.

For instance, Brazil exports thousands of reefers filled with fresh produce and meat. With their rapidly growing economy, they also import a lot of dry commodities for infrastructure and development, leaving Brazil with too many dry containers and too few reefers. Due to this imbalance, many of the ocean carriers offer reduced rates to use these “non-operating reefers” to get dry cargo into Brazil.

The bottom line for your bottom line is to know the costs that you are being charged and know how to swing them to your advantage.

Find Waldo!

Click the following link for a PRINTER FRIENDLY VERSION of this article: LWL035 Know Your Rates

Sources for this article include:
From The Repositioning of Empty Containers by Dr. Jean-Paul Rodrigue
Filling Shipping’s $1 Billion Hole – The Logistical Challenge of Empty Shipping Containers from March 15, 2012 by gCaptain

About Lenny

Many years of experience in a Fortune 1000 companies, especially in the logistics and I.T. areas of manufacturing companies. Through process improvements and the use of many of the tools mentioned here, I have been able to identify and implement savings opportunities worth up to $10 million. I hope that some of these real-life stories, suggestions and tools can help you!
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