Do Companies with a Higher Transportation Spend Always Get the Lower Transportation Rates?

Trucking Fleet

The LeanCor Logistics team was recently asked the question, "do companies with a higher transportation spend always get the lower transportation rates?"

We often run into a general assumption in the industry that companies with high-volume transportation spends (exceeding $100M) will have an advantage when it comes to securing lane rates.

But in our experience -- while there is an overall correlation, the causation comes from three, non-spend related sources.

1. Companies with a larger spend typically have a larger staff.  

Possessing a larger staff will often translate into having more industry experience that supports carrier selection and negotiation tactics.  Smaller organizations, without the staff, will often select convenient carriers and perform inadequate negotiations.  An example of this would be aggressively negotiating on a lane rate and ignoring accessorials, or allowing for full bill-back of dead-head or round-trip miles.

2. Companies with a larger spend typically have the technology and resources to stay informed with market rates and bench marking activities. 

They can leverage this technology and knowledge to influence decisions on carrier selections, and know which lanes or regions to target for ongoing cost reductions.

3. Companies with a larger spend will have experienced multiple seasonal disruptions (i.e. produce season, Christmas, etc.), and have learned how to balance the right mix of dedicated contract rates and spot-market buys. 

While spot markets may look attractive periodically, other times they can send shock waves of cost increases through your organization. Smaller organizations are often challenged with developing seasonal coverage strategies to leverage the right mix.

Overall, we do see organizations with larger spends trending at lower transportation rates. However; outside of rare conditions, this is not due to a pure volume game. It's due to leveraging the right levels of technology, information, and experience. 

We recommend organizations in the $5M to $20M to look for a strong transportation management provider that will not bury your costs in brokerage rates. Rather, one that will deliver the right levels of technology, information, and experience to augment your business and provide a $100M spend-like experience.

 

Posted by Derek Browning

blog author

As a Director of Consulting services, Derek directs a portfolio of end-to-end supply chain projects for companies in a wide array of sizes and industries. He's trained thousands of professionals in lean, six-sigma, leadership, and supply chain through LeanCor and leading education partners. Derek complements his experience with an MBA, a bachelor’s degree in marketing, and several professional certificates.

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