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Six Best Practices to Reduce International Transport Cost
The savings opportunities related to low cost country (LCC) sourcing strategies have far out-weighed concerns regarding the processes and systems needed to efficiently manage a global supply chain. Surprisingly, few organizations have clear transportation management initiatives surrounding their LCC sourcing strategies to ensure they truly reap the intended benefits. To this end, below are six best practices you may want to consider using to reduce international freight costs:
1. Ensure your sourcing team understands Incoterms® and applies them correctly. Also make sure packaging and global trade requirements are clearly set. If you do not have the “know-how” for this in your team, work with an international, independent firm to get advice in supply chain and trade matters.
2. Implement a transportation sourcing strategy. Different models work for different organizations depending on your sourcing footprint. The more geographically dispersed you are, the more likely you will need a larger number of transport providers. As a general rule, the goals are to leverage your transport buy, drive transport costs down and simplify decision making. To this end, a “one stop shop, one solution fits all” may be the most convenient approach, but very unlikely will it be the most cost effective. On the other hand, if you spread your buy across too many carriers, you will dilute your negotiation power and add complexity to your decision making. The right mix of carriers supporting your business needs to be a conscious, well-thought out decision.
3. Invest in well-designed transport contracts. If you do not have a legal department, outsource to the ones that know about transportation. A poorly formulated contract can easily take away from savings. Depending on the value of your cargo, it could wipe out—in one single event!—your entire savings plan because of an inadequately defined “cargo damaged and lost” liability clause. Along with having good contracts, you also need to make sure you have a plan to keep and manage your contracts and rates in a central place.
4. Negotiate good rates. By saying “good” that does not necessarily mean “dirt cheap”. At the end, you get what you pay for. More importantly you need to:
• Establish benchmarks. You can not possibly know if the rates you have been offered are good unless you have something to compare it to. Do your homework and get a good idea of what is a good, fair rate. If you do not know how to get this information, work with an independent logistics firm to help you gather it.
• Ensure a good rate structure. For instance, a common problem with ocean container rates are the steam ship lines’ “general rate increases” (GRI). Many rates do not account for this, and you will get hit at least once a year with an infamous “GRI”. Hence, if you have the negotiation power, use it! Clearly define “all inclusive rates”, and spell out that surcharges such as GRI will not be accepted. Outsource your negotiations with the experts if you need to.
• Partner with your service providers. Your providers are there to help, and it is in their best interest that you do well. Once you have defined your core service providers, make sure expectations are clear; delivering the cargo on-time is no longer good enough, they need to add value too!
5. Invest in a well-designed, easy to access and easy to maintain route guide. Having good rates in a binder seating at your desk, where only you can see them, will not do your business much good. Once you have those “killer” rates, make sure everyone in your organization who makes transport decisions and processes payments has access to the rates as well. It is in your best interest to ensure the correct carriers are selected and the correct rates are applied. Don’t worry if you do not have an IT army to design this for you; there are several off-the-shelf products you can buy. Please note that if your cargo is not the “standard” type, you may be better off outsourcing this to a logistics firm that can provide and maintain a more customized route guide for you
6. Finally, make sure you have processes in place to control your transport cost. Once you have good, well-managed contracts and rates; an effective way for your organization to access the information; and a good relationship with your carriers, then the challenge is to make sure things on your side are set up to optimize your spending. Some areas to look at:
• Work with your sourcing, manufacturing, and sales teams to make sure your cycles allow enough time for good forecasting and optimal transport mode utilization.
• Collaborate with your sourcing, manufacturing, sales, and finances teams to create a tier approval process for transportation. Build in defaults based on thresholds to avoid bottlenecks, and require approvals for higher cost shipments.
• Verify there is a robust invoice audit process in place.
It is not news that every day we move more towards a global community. Smart businesses can benefit a great deal from this. Sourcing internationally while managing your transport cost is not rocket science, but to be successful you do need to do your homework up-front. Contributor: Amparo Elizondo, Allyn International Americas Logistics Manager, Ft. Myers, Florida. +1-239-489-9900 ext 1422.
Allyn can help you with your supply chain planning, transportation and global trade needs. Our global logistics experts and our state-of-the art logistics software are ready to serve you. Let us be a part of your team! Contact us at AllynLogisticsMgmt@Allynintl.com or +1-239-489-9900