Understanding Your Logistics Spend: 5 Tips to Trim Budgets in 2023

• November 16, 2022
• Jennifer Clement

Has your quarterly transportation spending been – like everything else in 2022 – on the rise? There’s good news in 2023, with a forecast of potential savings…if you know where to look.

Transportation costs typically represent 6-8% of total revenue¹, although recently, that number is creeping closer to 10% and beyond. As you prepare 2023 financial plans, you can take advantage of significant savings in logistics.

One of the first hurdles to address is the fact that in manufacturing, transportation is often an afterthought when it comes to overall process and spend.

“It’s a timely discussion because we’ve seen a lot of volatility in the last two-plus years, and the capacity for freight has been limited in all modes of services,” noted Patti Thiel, Manager of Supply Chain Process Consulting for TMC, a Division of C. H. Robinson. “Now, those constraints are loosening with positive pricing changes in several areas, especially in truckload and ocean.”

Recognize Opportunities

Use these insights to find opportunities for savings in transportation.

1. Renegotiate contracts. New year, new contracts. Don’t assume the status quo of price increases. Truckload is a key area for savings – both for contract and spot markets. If you’re doing a request for proposal (RFP) with truckload, there’s an opportunity for better rates than we’ve seen in two years. On average, clients are seeing cost reduction opportunities with final savings landing in the 12-20% range.²

2. Build realistic lead times into your processes. Booking ahead has risks – delays in manufacturing can make you miss your booked space – but also big rewards. You’ll still pay a premium for expedited or last-minute freight in any mode, so the farther out you can secure your space, the more you can save. Ocean space can book out four weeks in advance. For truckload shipments, increased lead times helps confirm route guides stay intact and spot pricing is more favorable. ³

3. Reconfigure processes that lock you into more expensive transportation. In all areas, while capacity is expanding, we’re not yet at pre-pandemic levels. As we continue to experience recovery in world-wide transportation markets, there’s still a call for excellent planning. Outdated processes that increase lead time variability can still lead to expedited and expensive freight. One example would be customer segmentation for service. If all customers are given the same service expectation and service level, unnecessary costs can be incurred. Segmenting service levels and fill rates for customers can reduce cost and improve performance in other areas.  

4. Right-size inventory. As global markets tighten, how are you positioned for a reduction in demand? What is your plan to strategically buy capacity at the right time and right price? Warehouse pricing continues to go up and product that’s on a shelf takes up space and capital. Take a good look at what you’re holding on to. Reduce the overflow to reduce your inventory costs and keep the inventory you need to meet that four-week planning window.

5. Build relationships for continuity. Having strong, strategic relationships with carriers and suppliers helps you remain a shipper of choice. The market is cyclical and the more you can build relationships where commitments are honored, the more you can be able to smooth out the volatility as the pendulum swings back and forth.⁴

Employing these five strategies can help companies realize short- and long-term revenue gains through reduced costs, improved key performance metrics, and better-managed inventory.

1. (Ruffin, 2018)
2. (C.H. Robinson Worldwide, 2021)
3. (CH. Robinson Worldwide, 2021)
4. (C.H. Robinson Worldwide, 2021)

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