’Tis the season for general rate increases (GRIs)! LTL carriers across the board are releasing an increase on their base shipping rates. To date, Old Dominion Freight Line announced a 4.9% GRI, Saia announced a 5.9% rate increase, ArcBest implemented a 5.95% GRI for LTL services, Yellow installed a 5.9% increase and Forward Air implemented a 6% GRI.
The GRI process typically takes place once a year, usually in the first quarter, but GRIs can be issued periodically depending on carriers’ costs on labor, fuel, technology, real estate and any other miscellaneous price hikes experienced on the carrier side of the business.
In soft freight years, carriers will often forego issuing a GRIs, but that is not the case this year. Freight is currently widely available, so LTL carriers have been issuing GRIs in the 5-6% range. Even though we are currently amid a pandemic, the increases are on par with industry norm. However, there is some industry chatter of another GRI coming in the second half of 2021.
So, what does this mean for LTL shippers? It depends on the company. Annual GRIs are issued for non-contractual freight, so the larger customers/companies that generally negotiate special rates with carriers are unaffected while small-to-medium-sized customers – those who don’t ship enough freight to negotiate better pricing – are adversely impacted.
How Shippers Can Mitigate GRI
The smaller to midsized companies affected by GRIs often only learn about the increases once they are published, so they don’t have the chance to effectively budget. However, there are a number of things companies can do to help offset the cost increases each year.
Reduce the costs that you can control. You may be able to reduce your packaging costs, change freight classifications, accept longer transit times or find a less-expensive carrier.
Are you using the most efficient type of packaging for your products? If you can use a smaller box, pallet or container to take up less space on a truck, you can save money. Recently, Walmart was able to reduce its shipping costs by simply changing the shape of milk cartons. Therefore, try thinking outside of the box – quite literally in this case. Look for packaging that is easy to load/unload, has easy label visibility, fits well together when stacked but is still protective of the goods. Improving your packaging may also reduce damage to your freight, saving additional money.
Better packaging may also lower your freight classification, reducing your costs. Freight classifications can be tricky, and sometimes freight ships at the wrong classification. Do your research and make sure you are shipping under the right classification. You may be able to save money without changing anything about your freight or current procedures.
Additionally, if possible, you can reduce your freight spend by choosing a longer transit time. The default option by carriers will always be the quickest, but that is not always the cheapest. If you have the time in your shipping, use it to your advantage.
Another option is to rate shop and compare carrier quotes. It is often the easier and quicker option to go to your preferred carriers or those that you have relationships with, but they may not be offering you the best rates. Look to regional, super-regional or other local carriers if possible. Carriers have preferred lanes, so if you can offer a carrier quality freight in its preferred lane, you may be able to get better than base rate pricing. It may take a little research, but it could pay off in the end.
Implement technology. There are many benefits to technology solutions. Shippers that use a transportation management system (TMS) can reduce costs, improve billing processes, create operational efficiencies and simplify the entire freight-buying process. By utilizing a TMS and freight-pricing APIs, you can save even more. Freight-pricing APIs allow you to compare carrier rates in real time while also tracking your shipments and simplifying invoicing and bill auditing.
Use a third-party logistics provider (3PL). By utilizing a 3PL to run your shipping or logistics, you can benefit in a number of ways. They have long-term, existing relationships with carriers that they can use to garner better results in negotiating. Additionally, because they have multiple clients, they have more freight to ship, meaning better costs as well. They also already have the needed technology in place, so you can get the benefits of a TMS or APIs without the upfront investment. For small-to-midsize companies, hiring a 3PL could save you time and money.
Prep for GRIs
While you may not be able to know your carriers’ GRI in advance, you can do a number of things to be prepared for the annual increase if and when it comes. By knowing your freight and your carriers’ preferred lanes and by utilizing the technology that is available today (either by investing in it yourself or through a 3PL), you can help reduce the impact that the GRI will have on your budget or bottom line.