Tracking freight spend for retailers and suppliers

by | Jan 16, 2017

Retailers and suppliers who want to keep costs under control and analyze all of their spending should pay particular attention to freight spend, shipping rates and who you’re spending with. This is where the costs can really spiral out of control if you’re not paying close attention.

Whether you’re a retailer or a supplier, if you’re managing your own transportation for goods, it’s important to analyze whether your freight spend is matching up with the shipping rates you were quoted in the contract. Additionally, when you know what you’re shipping and how much you’re spending, it’s easier to research whether there are better rates available to suit your needs.

When was the last time you compared what you’re actually paying in shipping rates to what you agreed to pay? In a previous life, at a workplace far, far away, the company I worked for actually hired a 3rd Party Auditing from to come in and identify freight charge discrepancies. Our contract stated that if he found errors, he would rectify the situation with the freight carrier or Supplier – for the handy fee of 50 percent of the refund. Though he was saving us money on freight charges, we were still paying his fees. So I figured out what he was comparing, and once I started doing it myself, we were able to recover the full refund ourselves. You can make the comparison, too, and start saving your company money on shipping.

Two-way match for shipping rates and freight spend

Retailers and suppliers should run a two-way match comparing the shipping rates they agreed upon and what they’re actually paying for shipping. Whether it’s FTL, LTL or drop shipping charges, with an automated EDI system, it’s recommended to regularly audit freight and shipping costs to ensure the rates are all matching up. This can identify any discrepancies, and reduce the amount of manual staff time it normally takes to address these issues. We’ve seen firsthand how this process can save retailers and suppliers of all sizes a lot of money on shipment charging errors and mitigate problems with budget overruns.

Here are the types of rate discrepancies that we ran into pretty regularly once we started auditing our shipping rates:

  • Freight was supposed to be pre-paid as long as a certain quantity and volume was ordered, yet we were still receiving freight bills.
  • Some portion of an order ended up on backorder and the initial shipment was billed properly as pre-paid, but the carrier was charging shipping for backorders.
  • The supplier changed the shipping method, but didn’t take into account the pre-paid shipping agreement and we were getting billed.

Extraneous freight and shipping charges can pop up for a variety of reasons. Perhaps the shipping issues are due to a flaw in the suppliers order system that isn’t taking “backorders” into consideration, as in the example above. Maybe the supplier is sharing outdated or incorrect data with the carrier. Regular analysis and good communication can help you to identify patterns and close the loop so those extra shipping charge issues don’t reoccur.

This process can be done manually, but it’s easy to automate, too. As long as the shipping charges match, the invoices will be processed through the system and only discrepancies would be brought to your attention. You can also hire a third party to do it like the other company I used to work for.

Comparison shopping for shipping rates

It’s also important to compare shipping rates on a regular basis. If a retailer or supplier is managing its own transportation, it should analyze those rates at least annually when your contract comes up and monthly if possible to determine whether the freight rates you’re paying are matching up. Many suppliers and retailers don’t do that, or if they do, they don’t do it often enough. The retailer or supplier just requests a carrier to pick up a shipment, it receives and pays the invoice, and hopes the price is competitive. It’s possible there may be better rates available, but you’ll never know if you don’t look and compare.

For many retailers and suppliers, there’s typically no comparison shopping and no reconciliation of the bill back to the original freight invoice. The only time most retailers or suppliers go back and check is if it notices its freight costs are higher than its budgeted figure. That’s when the company starts digging in to determine why.

Shippers will invariably raise their rates on occasion, especially as fuel rates fluctuate and labor costs go up. For example, UPS and FedEx, two of the biggest names for shipping next to USPS, are both raising their rates in 2017. Retailers and suppliers who aren’t paying attention or those that have not compared its shipping rates in a few years may be in for a surprise when it finally takes a look at shipping costs. Performing at least an annual checkup of shipping can help retailers and suppliers find competitive shippers to help keep total shipping costs within budget.

Even so, transportation can be a cutthroat business – you could very well find a carrier willing to offer lower prices. There may also be carriers that have better rates for the quantities, volumes and localities you ship. You may also find a carriers within a given region might work better in some places with volume locally.

Ultimately, cloud-based solutions like those offered by SPS Commerce help to manage your documentation, as well as analyze data to find ways to reduce freight spending costs, consolidate orders, and even keep track of your inventory.

With solutions to analyze your freight spends, you can set up freight rates by carrier, and then analyze your invoices and compare them to the posted rates and do an audit. You can do this at an LTL, FTL, or even parcel by parcel. To learn more about the different SPS solutions, please visit the SPS Commerce website and contact us.

Scott Bolduc

Scott Bolduc

Director of Supply Chain Strategy at SPS Commerce
Scott Bolduc is a multi-time winner of the Supply & Demand Chain Executive Pros to Know. He has worked with e-commerce retailers on their growth strategies and helped retailers transform their freight spending strategies to maximize efficiencies.
Scott Bolduc

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