With industry experts predicting an increase in freight rates later this year, the pressure is growing for shippers to reduce transportation spend. But, if a shipper pays lower freight rates than their peers, will it negatively affect the carrier’s performance? A recent study set out to answer this question.
Performance criteria in the study included metrics like transit time, technical competencies, flexibility in disruption, information, and claim history.
There was no absolute relationship between carrier performance and freight rate. But, when shippers paid below the market average, there was a visible decrease in on-time delivery. An average rate of $50 below market price led to less than 40% on-time delivery. A rate of $20 below market price led to a 40-70% on-time delivery. Shippers with on-time delivery between 80-90% paid just over the market standard. There was little to no rate incentive for achieving 90-100% on-time delivery.
To improve shipping performance, you can’t simply pay higher rates, you must understand and act upon carrier performance data.
Understanding performance data starts with the full integration of a transportation management system (TMS). A TMS offers benefits for businesses like cost savings and shipment visibility, but it also provides you with monthly KPIs on carrier performance.
3 important metrics to track and analyze transportation performance:
- Transit Time: Transit time is measured by the time it takes, hours or days, from the time a shipment leaves your facility to the time it arrives at the customer’s location. This metric is usually measured against the transit time quoted by the carrier per lane.
- On-Time Delivery Performance: On-time pickups are calculated by dividing the number of pickups made on time by the total number of shipments. This metric indicates service to customers, and how a carrier’s performance affects your operations.
- Truck Turnaround Time: Truck turnaround time is the average time between a truck’s arrival to your facility and its departure. This metric provides insight into your facility’s efficiency, unloading/loading processes.
Tracking transportation metrics is made simple with the help of a transportation management system. TMS technology enables shippers to identify inefficiencies, optimize freight moves, create better customer experiences, and reduce overall costs.
Continue Reading:
- 3 Ways Supply Chain Cost Analyses Help Your Business
- Case Study: Reduce Freight Spend with Automation
