Riverside Logistics

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How to make sure your Freight Broker is “SECURE”!!!

What is a Freight Broker ?

They are someone who arranges transportation for another company (Shippers) using someone else’s transportation assets (Carriers). The Broker can be thought of as a “matchmaker” between Carriers with transportation assets and Shippers with freight. Typically, Shipper’s contract with Brokers to handle the shipment of all or a portion of their freight. Some Brokers act as a backstop for Shippers. When Shippers can’t get enough capacity from their regular carriers, they utilize Brokers for the excess moves. Brokers find carriers, arrange the details of the loads, pay the carriers, and invoice the Shippers. Although there is a lot more to it than just that, you probably get the idea. Brokers are middlemen. They don’t own anything, either freight or carrier assets, they just marry the two and charge a fee for doing so.

Why do Shippers use Brokers?

There are a couple of reasons:

The Brokers usually have access to a more extensive network of carriers than the Shipper. This network is a single point of access for multiple freight options and modes. It also allows the Broker to negotiate lower rates due to the overall volume of business they provide the carriers and shippers they do business with.

Brokers have technology, like a Transportation Management System, that allows them to save a lot of time (and trouble) in finding the right carrier, at the right time, with the right equipment, at the right price, and then executing the loads efficiently.

The Brokerage can improve your Supply Chain’s performance and avoid potential execution problems by utilizing their superior relationships and expertise in dealing with carriers’ operations.

Flexibility is another key advantage. They can help you expand as needed without tying up as much capital while minimizing your risk to changing market conditions. The depth of their bench can help you improve your supply chain and cost regardless of market conditions.

If utilizing a Broker makes sense for your company, how do you make sure that you get a good one and not a bad one?

Ensure they have the necessary licenses and accreditations. Brokers are licensed by the Federal Motor Carrier Safety Administration (FMCSA) and must carry a (minimum) freight broker bond. This stifles fraud in the trucking industry and guarantees carriers get their invoices paid. Also see if the Broker is a member of TIA (Transportation Intermediaries Association), which works to improve the industry and its education and standards. TIA tests and provides certification to Brokers. See if your prospective Broker is TIA certified.

Make sure they meet your communication needs. You want Brokers to be responsive at all times. They should provide regular updates on your shipments. Any issues should be made transparent and dealt with effectively.

The contracts and costs should be easy to understand. Services must be clearly defined. All add-ons associated with the load must be disclosed upfront. This includes fees such as fuel, detention, and demurrage.

Some “red flags” to watch for with Freight Brokers

Is the broker difficult to reach or unresponsive to your calls or emails? This may indicate that they’re unreliable and don’t have the capacity to take on new work.

Is the broker vague about their charges. If so, you may get hit with hidden costs on your invoice. Make sure you understand all the costs involved with moving your goods.

Does the broker work with only a few carriers. If so, you may not get good rates. The smaller the carrier pool, the less the competition.

Is the broker financially stable? Do they have adequate insurance coverage. If not, this could be a significant risk to your load. Check their  D-U-N-S Number. Also request to see a Certificate of Insurance (COI), which provides details about their insurance policy.

Make sure that the broker doesn’t have a “conditional safety rating”.  This would mean the broker/carrier, or their truck driver, has had multiple violations and is not following regulations. Make sure the broker complies with all relevant regulations and standards and that the carriers they use have an excellent safety rating before booking your shipment.

Here are the key traits to look for in your Freight Brokerage:

  • Trustworthy
  • Flexible
  • Customer-Oriented
  • Proactive

Here are some key questions to ask a prospective Broker:

  • How long have you been in business?
  • How do you source your carriers?
  • How does your carrier on-boarding work?
  • Once you find a good carrier, how do you keep them?
  • What is the average tenure of your team members?

Hopefully, you are now better prepared to successfully hire a Freight Broker if you need one. Good Brokers can be extremely helpful in managing your Supply Chain. Riverside Logistics Services has been helping Shippers manage their Supply Chains for over 25 years. We are a member of the TIA (Transportation Intermediaries Association) and actively participate to improve the quality of the Brokerage community.

We have a very thorough carrier on-boarding process and go to great lengths to make sure that our carrier community is extensive enough to meet all the needs of our clients. We welcome any opportunity to discuss your Supply Chain and can be reached at 804-474-7700 ext. Option 4.

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Preparing a Domestic Less-Than-Truckload (LTL) bid in Today’s Market

The first question is why should you be concerned about preparing a domestic USA LTL bid?

Warehouse space is loosening up as is truck capacity. Rates usually follow a downward path when that happens. The market is 30-40% lighter right now so it is a good time for bid requests to go out. There’s a lot of truck(er)s and less business for them to handle. Conditions are ripe for bidding out your business. The freight spot market rates have come down, which indicates that overall truck market(s) are softening. During softening conditions, you are in a good position to bid out your business for annual contracts (or longer).

So how do you go about bidding domestic trucking rates?

Here are the basic steps needed:

  1. Put together your process.
  2. Indicate how many rounds you are going to do in your bids.
  3. Determine which business you are going to bid out.
  4. Decide if you are going to look at bidding all your business or just some of it.
  5. Have a goal for reducing your freight costs. For example, “x % reduction in overall LTL costs”.

Now that you have made those decisions, here are the steps you go through during the actual bid:

  1. Identify which carriers you want to participate in the bid. Get their contact information.
  2. Notify the carriers you have identified that you are preparing to send them a bid.
  3. Collect data at least 6 months (minimum) for all the shipments in play.
  4. Include lane level detail, but don’t show actual costs or carrier SCAC’s for each move.
  5. Use zip code to zip code for the origin and destination data set.
  6. Rollup the data by origin and destination states showing average weights, density, and ship sizes.
  7. Provide a data sheet for each type of product that includes specifics such as:
    1. the value of the product.
    2. the National Motor Freight Classification (NMFC) for the product (if you don’t know ask carriers for this).
    3. the average product ship weight.
    4. type and size of pallets used to ship product.
    5. packaging type(s) such as Cases, Bales, Crates, etc.
    6. Percentages of prepaid and collect freight.
    7. Bill to addresses and contacts information.
  8. Include percentages for types of business handled such as:
    1. Business to Business
    2. Business to Customer
    3. Military or Government business
    4. School/College business
    5. Other types if you have them
  9. Show how much of the business requires additional charges. These are called “assessorial”.
    1. This includes charges for things such as: Liftgate use, Inside delivery, Residential delivery, Delivery Notification or Appointments. Ask for a list from one of your carriers.
    2. Show each assessorial as a percentage of the total shipments and provide a requested target cost for each, if you know it.
    3. Show which assessorials you want the carriers to “WAIVE” the cost on .
  1. Make sure you specify what Base Tariff Rates to use. Carriers traditionally discount off of a rate basis. You need to specify which one they are to use.
    1. Present a target pricing discount level in percentage terms. Discount requests are from a common base rate set. For example, you might ask for an 80% discount from Czarlite 2010. Ask your carriers if they use Czarlite (they should, as it is common used).
    2. Designate whether or not you want the rates to be applicable to Canadian Freight, or freight going into and out of Canada. If the carrier serves or has partnerships with carriers that serve Canada.
    3. Also specify your existing assessorial breakdown percentages so the carrier understands how important these assessorials are to your overall business mix.
  1. Fuel Surcharge (FSC)scales are extremely important to the overall cost structure. Fuel can represent 30% of your total cost. Typically, FSC scales are pegged to the DOT’s weekly national average diesel fuel prices. All LTL fuel surcharges drive off the base line haul rates as a percentage. See example below:
Proposed LTL- Fuel Surcharge
National Average Fuel Price The % Fuel Surcharge Will Be
At Least But less than LTL
$1.05 $1.15 9.40%
$1.15 $1.25 9.90%
$1.25 $1.35 10.40%
  1. A Sample Bill of Lading (BOL) is helpful so the carrier can see what type of BOL you use for you business. In many cases the shipper has a pre-printed BOL that shows the classes/types of products shipped and their NMFC’s.
  2. Pictures of the product being shipped is helpful for the bid as well. Most carriers will ask for pictures of the product to accompany the bids.
  3. Lastly, an LOA, Letter of Authorization, for the carrier to provide pricing is required. This (or a copy) should be written on the companies letterhead and be signed by an officer of the company or someone who is duly authorized to negotiate freight rates.

All of the above is not mandatory for a bid, but it is all extremely important to the quality of the bid results and the ability of the carriers to correctly price your freight. It may seem a little daunting for first timers, but after you have done a couple of bids using the above process, it gets a lot easier over time.

Riverside Logistics has been doing LTL bids for over 20 years and has a proven process to get the best results from RFP’s and RFQ’s for clients. If you would like us to do an LTL, Truckload or Parcel bid for your company we would be happy to do so. One thing we have is a lot of baseline information to compare results of the bids against. This allows us, in your stead, to provide very competitive rate information and produce the best results for your company.

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When should I consider using a different mode for my domestic freight?

First, let’s go over what the domestic modes of transportation are. In commercial transportation there are 6 modes of note: Truck, Rail, Water, Air, Pipeline, and Intermodal. In this article we will be discussing all of them except pipeline.

Domestic Water and Rail transport usually revolve around bulk commodity movements.

Water/Barge traffic moves commodities like sand, coal, paper, lumber, stone, chemicals, and ash. Rail does too. Rail moves a significant amount of coal and other mined products. Most railcar fleets consist of flatcars, hopper and tanker cars used for handling chemicals, wood, stone, coal and mined product, dimensional lumber, and timber. Very little rail traffic is in boxcars. In fact, the railroads are not really building or leasing any new boxcars for their fleets. They have determined that the money is to be made in bulk commodities, particularly coal. Domestic water traffic handles (mostly) bulk commodities as well. Both Rail and Barge traffic are usually used when the commodities being handled are low in value and in bulk form. Tradeoffs between water and rail depend a lot on access to each mode, and whether time in transit is a concern. In addition, seasonal factors can come into play.

Water

Domestic water traffic shuts down when their bodies of water freeze or flood. There is uncertainty in delivery times attached to the water mode at certain times of the year, primarily during winter and spring. These can be disruptive to travel schedules. So, if consistency of delivery throughout the year is a concern, then waterborne traffic will be problematic during certain times of the year. Water has some inherent advantages over other modes. It can handle significant weight with little change in operating cost. The added cost of another barge in the tow is minimal. Water can charge extremely low unit costs for transportation. Their costs per ton mile as a unit of measure are the lowest across the modes (except pipeline, which we won’t discuss here). If you have access to water transport and produce a bulk commodity, such as those listed above, then it is a viable form of transport and should receive consideration. If you would have to truck product to the on-load and off-load sites to use water transport, then those costs must be factored into the equation, as does the cost of managing multi-modal interchanges to get product from A to B.

Rail

Rail on the other hand, doesn’t have a seasonality issue like water. It does have an access issue, in that, without railroad spurs at your Distribution Center (DC) or your manufacturing site, you would have to move product to and from the rail siding by truck. That also holds true for the delivery sites as well. Once again, a potential added cost that needs to factor into the equation. Rail moves, steel wheels on steel track, is much more cost effective than trucking when you consider the length of haul. The rule-of-thumb is over 1000 miles rail is much more effective than truck. One rail car can usually haul as much product as 4 trucks. One train can usually carry the equivalent of 400 trucks. Rail is the cheaper alternative on land versus trucking. However, trucking can pickup anywhere and deliver anywhere. Rail cannot. Trucking can also move product faster than rail. For example, a typical coast to coast shipment will take between 7 to 10 days via rail. That same shipment will take only 4-5 days by truck, even faster (2-3 days) if team service is used. Truck has a decided advantage over Rail for time sensitive shipments and on movements of perishable goods. Since truck is faster, the integrity of the movement will be better as well. Less opportunity for shrinkage or damage than rail. Rail can’t compete with truck for short hauls of less than 500 miles. Truck can’t compete with Rail for bulk goods and long-haul freight that is not time or travel sensitive. There is an alternative in the middle. It’s called intermodal, and simply put, it takes advantage of the best of both modes.

Intermodal

A truck picks up the load, it then goes to a rail yard and the contents (usually a container) are then loaded onto a rail flatcar designed for this purpose and moved close (as close as possible) to the destination, where the contents are then put on a truck for final delivery. One key factor is how close the rail pickup and delivery sites are to the actual shipping locations. The closer the more competitive intermodal becomes to truck.  This mode is perfect if you want to move product faster than normal rail, since intermodal trains are typically setup to run thru the system faster, and if you want overall costs lower than pure truckload. Intermodal looks like trucking to the shipper and to the receiver but utilizes the advantages of rail for the largest segments of the movement. One caution with intermodal is that you can’t stop an intermodal shipment while it is on the rail. So, if you change your mind or need to re-reroute it, you usually can’t do that until it completes the rail segment of the journey. With truck you don’t have that issue, it can be re-routed or stopped at any time.

Air Freight

The last mode available is AIR freight. Air freight is the most expensive mode; however, it is also the fastest mode from point A to B when the distance is over 500 miles. If time is the enemy for your freight, then air freight makes sense. Usually, products that are most conducive to air freight are high value, time sensitive products that must be at the destination as quickly as possible. Think computer parts as an example. Air freight movements are not usually large either. Typically, one to three pallets.

Mode Mix

When considering your mode mix you are basically balancing time and place utility against cost. When comparing modes make sure you look at total cost, which includes cash cycles due to terms of payment. Truckers are more lenient than railroads for example. Also look at damage and loss factors, inventory requirements, reliability, and flexibility.

Parcel Ground vs LTL vs Truckload

I will now take a deeper dive and compare Parcel Ground vs LTL vs Truckload. There are some key considerations to make in these evaluations. Ground parcel has what’s known as hundred weight programs for shipping amounts over 150 lbs. These programs make a competitive run at pure Less than Truckload shipments in the 200 to 500 lbs. range. After that, LTL usually is cheaper and a better choice. At the same time, LTL has what’s known as volume rates for shipments over 6 pallets that allows them to try and compete with truckload when the shipment size goes above 10 pallets. In most cases, if you are shipping over 12-13 pallets you are better off cost-wise to use truckload service. There will always be exceptions to the above, so use these as general guidelines only. However, it is important that you explore your options and use those options that provide the best fit to your shipping needs.

How a Third-Party Logistics Company (3PL) can help.

One alternative to making your own selections is to let a 3PL, like Riverside Logistics, handle your shipping needs. They have the tools and experience necessary to make optimum routing and mode selections for any client. Their Transportation Management Software allows for efficient and effective routing applying cost and service parameters geared specifically towards your business model. If you would like more information regarding what Riverside can do for you, please call us at 888-999-0734 and a Logistics Management Consultant will be happy to assist you.

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How does the price of a barrel of oil affect your freight cost?

Freight Rates have been going up at a record pace lately and one of the main reasons is that fuel prices are also at record levels.

In March, U.S. oil spiked to a 13 year high at over $130/barrel. A key driver was the Russian Invasion of Ukraine. In addition, US producers were slow to respond. They just didn’t have the capacity or willingness to ramp up quickly. Right now, demand is high, and supply is constrained, so that means the upward pressure on prices will continue.

When looking at how fuel relates to oil, it’s helpful to understand that refineries produce about 11 gallons of diesel fuel for every 42 gallons of crude oil, so the higher the cost of a barrel of oil, the higher the pump price for diesel. Diesel is the primary source of fuel for large tractor trailers and accounts for approximately 20% of a carriers cost to operate, so it’s going to highly impact trucking related freight rates. This will also take capacity out of the market as independent truckers adjust record high diesel prices. Now  let’s look at different types of loads and transportation methods and how high diesel prices will change your freight cost.

Trucking Types:

Linehaul rates, the base rates for moving product from point A to point B, are triggered primarily by supply and demand factors. Load to Truck ratios drive spot pricing (daily pricing on freight load boards). The more loads and less capacity the higher the linehaul rates. Fuel Surcharges, on the other hand, are usually setup as a sliding scale, based on the Department of Energy ( D.O.E.) national average price of fuel. The scale slides up and down in cents per mile or as a % of revenue in accordance with designated bands of fuel costs. Usually, these fuel surcharges (FSC’s) are in cents per mile for over-the-road truckers, and in % of revenue for Less-than-truckload and Small Package. Current FSC’s are running around 31% for LTL and 96 cents per mile for truckload with diesel at 5.51$/gallon. They have increased dramatically since the first of the year.

The same dynamic between oil costs and fuel costs impact the other modes of transport as well. Ocean, Rail and Air transport all have significant expenses tied to fuel costs.

Ocean

For Ocean, fuel costs represent 50-60% of their operating costs.

Air

For Air carriers it’s more like 40% and is their biggest variable expense. This expense affects air transport belly freight as well as parcel express freight.

Rail

For railroads fuel cost represent about 20% of their operating costs. When fuel prices rise, rail becomes a more desirable solution vs truck, the converse is true when oil and fuel prices drop.

What is being done about all this?

The Carrier community is doing a couple of things.

Air carriers buy fuel hedges to guard against upward price swings. However, when prices drop, margins get hurt. They pass along fuel costs in the form of surcharges on their rates. These are currently running in the neighborhood of 25% of linehaul costs.

Ocean carriers are doing what’s called “slow steaming” to mitigate fuel costs. By reducing their speeds, they can save up to 59% of their fuel costs. The downside is that the travel time increases significantly. From days to weeks in some cases. Ocean carriers charge what’s called a “Bunker Adjustment Factor” or BAF, which is usually tied to the cost of Brent Crude Oil. Currently these charges run by trade lane and are reaching all-time highs of over $600 per 40’ container.

Rail Carriers are running diesel-electric locomotives which capitalize on the benefits of both energy types to improve the efficiency of their travel costs. Railroads, however, also impose mileage-based fuel surcharges. These have doubled since the beginning of 2022. They are now around 76 cents per mile.

The EIA or US Energy Information Administration posts the national average diesel price every Monday. Using this number along with the MPG of a truck (usually around 6mpg) and a pre-determined baseline (typically $1.50/gallon) you can calculate the Fuel surcharges that a motor carrier would ask for. The surcharge scale used is open to negotiation with shippers. Many shippers create their own fuel surcharge tables and when contracting with carriers, may force the carriers to use them. At the end of the day, Line haul cost + fuel surcharges = the total cost of transportation. So, if the shipper has a shipper-favorable fuel surcharge table, then probably the line haul rates will be increased by the carrier to compensate. At the end of the day the carriers must try and protect their margins and recoup their costs.

Depending on what type of shipper you are, a lot of the fuel impact depends on your base rates and whether you buy transportation on a “spot” or a “contractual” basis. If you buy contractually, which is recommended, your base rates usually remain the same for the term of your contract. Most contracts are a for at least one year. If you buy your transportation on the spot market, then you are exposed to the vagaries of the market. Fuel cost is always a floating cost that traditionally moves with the price of oil. Linehaul Base rates float on the spot market based on supply and demand in each market. If there are more loads than trucks, then rates go up. If the converse is true, then rates go down. Just remember if your base prices go up, and fuel is reflected as a percentage of base rates, then you take a larger hit than you would if the base rates didn’t float, i.e.., if you had contractual linehaul rates that were stable for a period. Not only will this save you money, but it will also allow you to plan you costs better.

The goal of any shipper is to negotiate a fuel surcharge that is favorable to their business and helps them maintain a strong competitive position. There are a few items that shippers should consider when deciding on a carrier to ship their goods.

  • Make sure the carrier fully explains how their fuel surcharge formula works and when it is adjusted. For example, weekly, monthly, quarterly, every Tuesday, etc.
  • Don’t assume that a high fuel scale base rate is bad. When the base fuel rate is higher, fuel surcharges usually are lower. Also make sure your cost bands are as large as possible. This will help minimize fluctuations.
  • If you negotiate a favorable FSC scale, make sure that your base linehaul rates are fixed for at least a year. This way your base doesn’t change except when it’s time to re-negotiate the contract. Thus, allowing you to better plan your costs for the year.
  • Make sure that when comparing carriers and modes that you fully understand how their individual fsc’s apply. Also, don’t forget to calculate the transit implication of using one mode over another. Dollars saved on transport can be lost because the products don’t arrive as soon as they are needed.

What does all of this mean for your freight cost in the next year? Lot’s of uncertainty and increasing complexity of solutions that provide a secure supply chain at a market price that allows your business to compete and grow. With all of this uncertainty, small & mid-size companies are going to find it challenging to mitigate cost and remain competitive.

Riverside Logistics is an expert in logistics costs and can help you with fuel surcharge negotiations and setting up scales favorable to your business. Give us a call at 804-474-7700 extension 82. We are here to help!

 

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What does it cost to hire a third-party logistics company to manage your transportation?

Often, a third-party logistics Company (3PL) can allow you to save money!

The cost to hire a Third-Party Logistics Company (3PL) is usually done on a pay as you go basis.

For example, if you use a 3PL to handle and manage your transportation needs, the typical way that they charge you is by marking up their transportation costs before they invoice you.

Here are some good reasons to hire a 3PL to manage your transportation:

  1. BUYING POWER: Riverside has numerous clients, using the same carrier base. This allows them to leverage this volume into lower rates than if you dealt directly with the carrier yourself. The amount of discount and reduction that Riverside receives, plus our markup percentage, is usually very competitive to the level of cost you yourself could find or negotiate. This means that we are usually more competitive, even with our markup than you would be on your own. Lower cost means cost savings.
  1. EXPERIENCE: Riverside has negotiating experience across many industries. We know carriers give more competitive pricing the better they understand the characteristics of the freight (i.e. commodity, dimension, weight, origin, destination and product value). Our goal is to find the best cost/service ratio for our customers using our visibility of a larger network portion of the supply chain.
  1. MANAGEMENT: Riverside has experience and expertise that allows us to be your Transportation Department. This means you don’t have to pay for a staff to manage and execute your transportation needs. We do it. This represents a substantial advantage to you. We handle all your freight audit and pay activity, making sure that the invoices are fully documented and are correct before we pay them. 
  1. SYSTEMS: Riverside uses technology to capture the relevant transportation data to efficiently run your business. This is important in today’s supply chain. It means we can track your shipments, transaction cost, and shipping and receiving metrics. All this can be done in real time. A 3PL utilizes these systems to properly manage and execute a logistics strategy that keeps you competitive.

In summary, a transportation 3PL brings a disciplined approach to purchasing and executing your transportation strategy. The ultimate goal is delivering service to your customers at a competitive price while saving you money.

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