Fighting Freight Fears: 4 Facts About LTL Shipping
Nick Ostdick - August 18, 2016
For companies in today’s automotive supply chain, there are perhaps two primary concerns when it comes to production and supply logistics: How do we best produce our products, and what is the best way to move these products to our customers. While the former is often the focus of greater discussion and debate, especially given the disparate nature of production with facilities and hubs appearing more frequently in disparate parts of the world, the latter is often overlooked - though consist oversight in shipping and transportation management can be just as harmful to an OEMs bottom line as gaps in demand planning.
The fact is, even in today’s interconnected supply chain where software solutions provide greater potential for end-to-end visibility than ever before, there still remains great complexity and nuance when it comes to transportation management and ensuring best practices for shipping products to suppliers, distributors, or other customers, especially when trying to leverage lean supply principles. Because factors like fuel costs, taxation, regulations, and regional distress, OEMs are constantly having to monitor and modify freight methods in order to ensure products arrive within delivery windows under optimal conditions.
One such method for doing this, LTL (Less than Truckload) shipping, has increasingly been seen as a value-added proposition for OEMs who may be wary of relying solely on rail transit, especially in new and emerging markets like Mexico where the quality of infrastructure may be a concern.
And because LTL is ideal for moving small freight loads, often on an in-the-moment timetable, OEMs have more capacity to react to surges in demand or disruptions to ensure a continuous movement of product without suffering the costs of FTL shipping (Full Truckload), which can be exorbitant especially for small or rush orders. Plus, OEM's who deploy transportation management tools and strategies in-line with LTL concepts have the ability to optimize shipments across multiple value streams and more accurately address demand flucutations as they occur.
But even with this obvious benefits, some manufacturers are still unsure about the value proposition of LTL shipping - or at the very least, they misunderstand how it can be leveraged in today’s automotive supply chain. To help rectify this, here are 4 facts about LTL shipping manufacturers should be aware of when evaluating their transportation management strategy.
Fact #1: The factors that play into shipping rates for LTL freight are not as nebulous as one might think. Usually, depending on the carrier, there are four main components of LTL freight rates: distance, weight, classification, and accessorials. Fuel surcharges do exist and are often calculated on a weekly basis based on national averages, however, with the recent downward trend in fuel prices - especially in the United States - these surcharges are often viewed as minimal. Because the factors of LTL freight are fairly cut and dry, it’s easier for transportation managers to compute, review, and analyze the cost and value proposition of LTL freight as opposed to FTL freight where the cost vs. value can fluctuate based on the type of product being moved, the distance, and other factors.
Fact #2: LTL shipping can be done at a fraction of the cost to OEMs. Because LTL shipping involves small orders in one trailer combined with small orders from other producers or manufacturers, OEMs can move products at a fraction of the cost compared with utilizing FTL freight or full trailers that may not be used to their capacity. While LTL can result in slightly increased delivery timetables, the savings in costs and resources far outweighs the liabilities, particularly in a variant-rich industry where sudden fluctuations in demand can necessitate immediate movement of products to combat disruptions.
Fact #3: LTL allows for more creativity and flexibility in freight management. The ability to ship smaller, customized, or specifically tailored orders to meet customer needs and requirements makes LTL shipping a value-added resource for manufacturers to reduce the complexity of freight in today’s global supply network. It also allows OEMs to move a greater quantity of products in smaller batches to numerous locations or facilities at once, which helps meets the needs of an increasingly spread out supply stream that spans several continents. This level of shipment optimization increases a manufacturer's agility and maneuverability in meeting customer demand and enhancing overall productivity.
Fact #4: LTL reduces dependency on other modes of transportation. While chassis freight is certainly not the only or, in some cases, even primary method of transportation parts from production facilities to distributors or directly to customers, it is one of the prime players in a company’s transportation strategy. LTL shipping can go a long way toward reducing a manufacturer’s reliance on auxiliary forms of transit such as air or rail which can be fraught with hidden costs, complexities, and liabilities in terms of ensuring on-time delivery in a cost-feasible manner.
In an industry where any one-size-fits-all strategy is simply not a viable approach, OEMs should prioritize LTL freight as a way to move specialized, demand-based quantities of product via a cost-effective model. In doing so, manufacturers will experience significant increases in the productivity and reliability of their supply network, which will in turn allow them to maintain a competitive advantage in a crowded, complex industry.