The 2018 budget season is heating up!

We all know how it goes: The heads of each department work on their annual budgets and turn them in to finance. Finance then returns with remarks like, “The budget is too high, make it leaner.” How do you go about “trimming the fat” off of the transportation budget? Transportation is typically a 6-12 percent cost band on the general ledger for most manufacturers and distributors and, once the 2018 budget is locked in, it doesn’t change.

OTIF Affecting 2018

There will be challenges rolling into 2018 with big box retailers making their On Time in Full (OTIF) / Must Arrive By Date (MABD) rules more strict.

Larger retailers have very strict rules when it comes to receiving products by a certain date to restock their shelves. If a manufacturer or distributor is not getting their product to the retailer in-full by the MABD, the retailer can hit the business with a charge-back for a certain percentage of the invoice value. Not only will the business receive their invoice short-paid but it will also reflect poorly on their business scorecard.

General Rate Increase with Less-Than-Truckload

At the beginning of every year, the LTL carriers will begin to roll out general rate increases, also known as GRIs.

Something to remember about LTL carrier GRIs is that the announced GRI isn’t necessarily indicative of the true impact to a shipper’s bottom line freight cost because the GRI is not a flat percentage rate increase across the board.

It is merely a combined average percentage increase across all lanes serviced by a carrier. Rates in some lanes may remain unchanged while some may increase by more than 4.9 percent.

A shipper could be seriously impacted by a general rate increase much higher than what’s announced by the carrier, so it’s imperative for shippers to check each lane for actual impact on costs.

Have your transportation and supply chain departments brought these items into consideration when rolling out transportation budgets?

Capacity Down and Fuel Cost Up in the Truckload Space

Fuel costs have raised 17 percent YoY, while truckload the truckload rate per mile ($2.21) is up 25.6 percent YoY. When you consider wildfires in California and the recovery from Hurricane Irma and Maria, it only adds to upward trend truckload pricing.

Import volumes are also increasing as retailers approach the holiday season. While unforeseen circumstances can affect your budget, a true 3PL partner can help make the pain as manageable as possible.

Freight Cost Allocation

 Accurate freight cost allocation is another issue that companies regularly face. True freight cost allocation should show your most profitable ship-to locations, customers, and products. Were you able to deploy sales people, advertising, and marketing budgets to the correct locations? Were customers, and product lines also accurate in relation to your budgeting for 2018?

Transportation cost is much more than beating up LTL carriers on pricing, sending out an annual RFP and picking carriers based on cost alone.

Don’t just remove a carrier and bring in a new one if you have a spat with the driver or if a shipment gets damaged. Make the decision based on the carrier’s overall performance.

Consider a 3PL When Budgeting for 2018

Transportation costs affect all aspects of your organization and should be taken in earnest. When assembling the 2018 budget, consider working with a third-party logistics provider (3PL), as they will take the time to learn about your business and see how these costs can affect all aspects of your organization.