If you want to save money on cargo transportation, settling on a carrier is only half the battle.
As with all areas of business, taking a proactive approach toward your shipping costs can sometimes garner hundreds, if not thousands of dollars in cargo transportation savings. What to look for and how to cut costs in those areas are the biggest questions you need to know how to answer.
Don’t worry; we have you covered.
Five Tactics to Save Money on Cargo Transportation:
- Container Utilization
- Routing Responsibility
- Check Your Incoterms
- Ocean Rates
- Demurrage and Storage
Efficient shipping container utilization is one of the easiest ways to save money on cargo transportation. When you are paying to ship products, you are paying a rate for the shipping container regardless of how full it is –unless you’re shipping LCL. This becomes problematic when you only have a specific amount of product to ship, and it’s just a bit too much for a 20-foot container. Now you’re looking at using a 40-foot container to ship, say, 35 cubic meters, and only utilizing 60% of the available space. In this case, it might behoove you to send the shipment or at least part of it as LCL.
One tactic that companies utilize to avoid this scenario is to plan their shipments efficiently. If you can hold off on ordering a certain product until you can fill a shipping container or begin your manufacturing process earlier, you won’t be losing money by shipping a half-full container. If you have multiple suppliers in the same area of the origin country, a buyers’ consolidation—when cargo from multiple suppliers destined for the same place is loaded into a container at an overseas container freight station— may also be a cost savings opportunity.
Also, you should consider carton size and pallet usage to save space on your shipment. If you can get away with using a smaller carton size, you will be looking at significant space savings. Floor-loading shipments in place of using pallets can save you up to 9 CBM of space in a full shipping container. However, it’s important to keep in mind that de-vanning a floor-loaded container is more expensive than unloading palleted cargo from a container. Therefore, it’s important to look at all costs when determining how best to ship the cargo.
Proper routing can save time and money when planning your cargo shipments. Taking a look at the holistic supply chain is paramount when assessing cargo transportation efficiency. For example, shipping from Asia to the West Coast of the United States is your most efficient route, as is shipping from Europe to the East Coast, but it’s not that simple.
Routing for inland destinations requires careful planning. Finding the best inland route also depends upon outside factors, such as taxation.
When shipping into California, your choice of ports is Oakland or Los Angeles. Oakland tends to be more expensive than Los Angeles, but your inland costs to certain destinations could be less expensive than shipping via L.A.
Another component to consider is your cost to transit time ratio, and whether you can wait a little longer to receive a shipment if it means that you will save money on transportation costs. When you are considering shipping into the Gulf Coast you have the option to ship by rail from Los Angeles, or by all-water directly into Houston. The intermodal shipping will cost you more than a shipment sent solely by water, but you will have your product at its destination much faster.
When shipping into the Midwest, or to destinations close to the northern border, you have the option to route your cargo through Canadian gateways as well. The Canadian gateways are often a win-win in this situation, as preferential rail rates are generally less expensive and also faster than routing your shipment through the West Coast. There are additional savings opportunities for shipments sent through Canadian gateways because cargo sent via Montreal, Toronto, Vancouver, or other Canadian ports are not subject to an importer security filing or the harbor maintenance fees incurred by cargo bound directly to the US ports.
It comes down to factoring all transportation costs and timelines for your shipments. If you are not in a major metropolitan area, you will be paying extensively for drayage. As much as possible, and when available, consider rail rates to get your shipment as close to its destination as possible. Advanced planning will also go a long way to thwarting unexpected routing delays.
Check Your Incoterms
Incoterms are negotiated at the beginning of supplier contracts and often never considered again. It is essential to understand the responsibilities and risks that you carry with cargo transportation. Shippers should periodically review their terms to ensure they still make sense from a cost and risk perspective. Market fluctuations, political climates, exchanges rates, and the growth or contraction of your supply chain may be factors that weigh into the decision.
Lock in Ocean Rates – or Don't
Market rates for ocean and air cargo transportation fluctuate. So monitoring the market is a smart tactic to consider for controlling shipping costs.
You must consider the benefits of locking in a rate as opposed to riding out the market. This depends on when your shipping season is and how much the market is fluctuating. If you lock in a rate, you risk savings on prices that could dip lower. Conversely, if you ride the market, you could leave money on the table if shipping rates increase. If you are shipping seasonally, you may be at a disadvantage by locking in a shipping rate. For example, if you only ship during the slow season, from Chinese New Year to the end of June or July, you will be paying more than you need to because you’re locking in a yearly average rate.
If you ship typically during the peak season, or if you ship steadily throughout the year, you may be at an advantage to sign an agreement locking in a rate for the year. However, this again depends on the market’s volatility, which is not solely influenced by demand. A company with the best opportunity for getting a consistent competitive rate is the one who will ship every week, guaranteeing a steady amount of containers sailing.
Demurrage and StorageIf you are using a separate freight forwarder and Customs broker, watch out for demurrage or storage fees which may pile up from documents not being turned over promptly. Clear and concise communication is essential in this situation.
The Customs broker is generally responsible for turning over the documents that initiate the movement of freight off the pier or out of the rail yard. If you are not using one provider for freight forwarding and Customs brokerage, you are placing your Customs broker at the mercy of your freight forwarder. In most cases, Customs brokers can clear the cargo up to five days before the vessel’s arrival, resolving any issues before the container gets discharged. However, this is only accomplished through efficient communication, which is not always the case.
Save Money with an Efficient Cargo Transportation Strategy
In order to save money on cargo transportation, your best strategy is to sit down with your forwarder and Customs broker to review your options within the global market. This task is much easier when your Customs broker and freight forwarder are the same. Seek ways to reduce your costs by planning your shipments appropriately and making the most efficient utilization of your shipping container space; be open to suggestions by forwarders and brokers who only have your best interests in mind, and remember that the market is continuously in flux. Be ready to adapt to it.