5 reasons why you’re overpaying for logistics services
Let’s face it, international logistics can be a complicated process and, more often than not, it’s the part of supply chain optimization that gets the least focus. Even well-run logistics organizations face an uphill battle when it comes to finding the best service for the best price.
Here are 5 reasons you’re probably paying too much for logistics services:
1. You pay for uncertainty
When you negotiate your contract rates with your freight forwarders and carriers, they are passing on the cost of uncertainty to you. Let’s say their cost of moving freight on a particular lane is expected to be $500 for a full container and they need to make $30 per container. Service providers will also add in additional cost to hedge for potential increasing fuel costs, geo-political issues on a lane, possible rising carrier costs and the like. You won’t get a price of $530 per container, but rather you may get something closer to $600 per container. You have paid for their uncertainty but ironically when those uncertain events arise very often there are still impacts to your business and additional costs that get thrown back (your cargo gets bumped, force majeure is claimed, costs show up in other categories, etc.) even though you have already paid for the uncertainty. However, when the events don’t arise you never recoup the extra cost you paid. It’s really a no win situation for cargo owners.
2. It’s tough to get healthy competition for your shipments
Getting comprehensive rate quotes, comparing prices and choosing a service provider to award is often a lengthy process. This is why so many companies choose to do 3-, 6- or 12-month contracts where they only go through this process a few times a year at most. Getting regular competition for your business and taking advantage of what the market has to offer generally doesn’t have a great ROI in a high-volume / small shipment environment because of the manpower and time needed to pull it off. The byproduct of this is that you will almost never have access to the best prices available in the market. Think about the difference in booking a hotel room 6 months in advance vs. using a tool like booking.com or hotels.com to find a last-minute deal. While the former assures you a room, the latter offers those great deals when there is extra capacity in the market and companies are competing for your business.
3. Assessorials and knowing the true cost
Even if you get really good rates on port to port lanes and possibly even some of the additional transport costs, your invoice almost never matches those rates. Why is that? Assessorials… those little charges that get bolted on throughout a door-to-door transaction. It’s the proverbial death by 1000 cuts and we see people in the market getting invoices as much as 30% higher than their agreed upon rates because of these charges. Because most shipments focus just on a couple of core rates and often ignore the assessorials until invoice time, cargo owners don’t get to see or plan for true costs until it’s time to pay and then figuring out a way to compare these costs across providers and lanes is really tough. That where this problem gets even worse as many companies hire third party auditing services or hire large AP groups to reconcile invoices and make sure all the costs match and are legitimate thus incurring an even greater expense.
4. You get what you ask for
If you ask to move something urgent air freight or you ask to move an LCL shipment that is exactly what you will get. While that may seem okay, often times you can still meet timelines without the extra cost of urgent or it may be that paying for a full container is more cost effective than an LCL. The reality is that burden falls to the cargo owner more often than not to come up with a solution and comparing options is time consuming and difficult. Some forwarders and carriers may give some assistance along the way to offer alternatives but more often than not they are just in the execution business of operating with whatever request they have been giving. Generally speaking, most shipments just need to arrive safely to some location at a particular date/time and very often there are a variety of ways to get the shipment there without risking the delivery date. Unfortunately, without tools to see these options cargo owners are left to their own devices to figure this out and hope for the best in choosing a solution.
5. The business makes its money on a lack of transparency
Let’s be honest, an informed customer can be very dangerous to the profit of someone selling goods or services. Many industries are being disrupted now by technology giving customers transparency into the cost and performance of the sellers. Take car buying for example and see how the emergence of companies like TrueCar that show actual prices paid by actual customers have changed how car buying is done. Before it was cloaked in confusion and obfuscation in order to mask what the actual cost is that was being paid and now customers are informed about what is a fair price to pay for a car. Logistics service procurement is still suffering from this lack of transparency. Very often in lieu of true visibility into costs and easy to understand contracts between cargo owner and providers, service companies rely on the opaqueness of the process to make large margins that vary incredibly between different businesses for the exact same service. This isn’t to speak ill of the service providers for making a profit in this space but rather to point out inefficiencies in the system and an unbalanced way of the buyer/seller relationship due to a lack of transparency. In the end, a well-informed customer is a happy customer and more importantly this will drive innovation and results from the service providers as well. But unless the customers demand this change, service providers will keep relying on this lack of transparency and customers are the ones that will pay for it.
e2log has a solution for all 5 of the above problems plus so much more. Come take a peek at just how much we can help transform your logistics operations.