…if you needed to buy a pair of shoes, would you rather spend $20 or $100 for the same pair of shoes?
(This does, I promise, concern today’s tight shipping market!)
Like most of us, you’re probably thinking $20 of course. None of us – myself included – likes to spend more than necessary.
The conversation changes, however, if we say that the $100 pair of shoes will last 2 years while that $20 pair of shoes will last a month. Suddenly, the $20 pair of shoes aren’t the same. While they may appear the same, they’re obviously of a lower quality with a real cost of $240 for the same period of time! In this case, the $100 pair of shoes is the best deal, isn’t it?
While this scenario highlights the importance of quality, it also exposes the ever important consideration of value. Everything has a cost; the question is how much value are you getting for your spend?
It’s the Cost-Value challenge people and businesses face all the time. In today’s tight shipping market, this exact challenge bleeds many companies of their profits.
Why Every Company Must Evaluate the Cost-Value of Every Shipment
When there are more loads than trucks, freight costs rise. It makes sense. Every shippers’ desire to find the lowest freight cost in an effort to protect margins also makes sense.
The problem is, one big claim can ruin the margins across the company. For example, if you’re shipping $50,000 worth of product, is a $250 savings on freight-spend worth the potential claim using the lowest bidder? A serious claim will wipe out the savings there and on shipments to come!
In a tight shipping market like this, shippers need to look at costs differently. Rather than viewing each load as separate ‘events,’ the cost of a load should be viewed in terms of “total cost.” This would mean all initial and potential costs must be accounted for. Living with “hope” that bad things won’t happen isn’t a business strategy.
Taking the example above, the freight cost of entire $50,000 shipment would be evaluated to minimize the entire possible cost from point A to point B. This means decisions would be made based on the freight-spend, potential liabilities, and frankly any other potential factors that could incur cost. Admittedly, we can’t know the exact number, but we can look at real elements of service that minimize the chance of increased costs or reduce or eliminate risk.
It’s a strategic approach to shipping. This approach protects you, your customer and your customer’s customer. In the long-term, it saves you money and makes your business profitable in the long-term.
The Simplest Way to Evaluate Cost-Value
No one knows how long this tight shipping market will last. Several factors have contributed to it, including:
- The ELD Mandate
- Increased manufacturing
- Not enough trucks/drivers to handle capacity
The ELD Mandate is not going away; shippers better get used to it. Increased manufacturing is dependent on the economy and can change. This second factor is also related to the final one which is simply not enough trucks/drivers. This has been a challenge in the industry for years and doesn’t appear to be changing anytime soon.
This means businesses that want to thrive more than merely survive need to adopt a strategic approach that enables them to find the best Cost-Value relationship.
Shipping brokers offer the best way to apply this strategy. As brokers, they make more freight options available to you and your business, finding the best value for the lowest cost. Many offer additional services to create practical long- and short-term strategies to lower costs and increase efficiencies.
Now, I’ll admit, I’m a little biased. But I’ve also lived in both worlds. I’ve been a shipper and a broker and I have seen how value-based strategies protect margins better than “cheapest rate.”