Freight Accessorials for CPG Companies: Augmenting Revenue While Covering Costs…And Then Some!

The challenge of adapting to the constantly-changing needs of consumers and retailers is compounded by the push for consumer packaged goods (CPG) companies to become lean and cut costs within their own operations. The effect of this can be noticed in numerous areas, but three major shifts have greatly impacted CPG companies and the way they operate.

1. More Private Label and Store Brands: As a way to save money, consumers are looking for cheaper alternatives to the products and brands they’ve historically purchased. While not always true, private label and store brands are often viewed as being less expensive, increasing their appeal to today’s money-conscious shoppers. In order to meet changes in demand, some retailers have gradually increased inventory levels of private and house brands compared with many of the larger, more recognizable CPG brands.

2. Growth of the Dollar Channel and Online Retail: In addition to changes in the brands consumers are buying, there has been a shift in where they choose to purchase these products. Historically, the majority of consumers would shop at big-box retailers and purchase everything needed for that week, or longer. However, due to reduced spending and more staggered purchases, the dollar channel has grown tremendously as consumers settle for purchasing fewer items at once and taking more frequent trips to the store. In addition, online retailers are taking some of that market share, which means a different sourcing strategy for manufacturers as well as the need to be quicker to market. CPG companies are clearly wrestling with this and reacting as quickly as possible with network changes and updated strategies.

3. Increased Margin Compression: Companies are looking at their entire organization to find ways to cut costs, and many are identifying the supply chain as a significant opportunity for savings. Organizations are closely evaluating their current operations to identify opportunities to streamline processes, eliminate waste and ultimately, reduce supply chain costs, while maintaining high service levels for their retail customers.

These recent shifts increase the complexity of the supply chain for CPG companies, and forward-thinking organizations are putting processes in place to address these trends and create more efficient, cost-effective supply chains.

One of the major ways that companies can increase their cost-effectiveness is through benchmarking their freight accessorials. These benchmarks are used by shippers to change carrier behavior, or by carriers to make sure they’re properly compensated for all the extra service they are providing to the shipper. Benchmarking against the market can put CPG companies in a better position to control accessorial costs. In fact, getting the right action plan in place can help uncover up to 12 percent savings of a company’s total freight spend.

Recently, Transplace completed its annual accessorial benchmarking study in order to gain insight into the changes and trends in transportation accessorial charges. The study, which included data from more than 150 shippers and over $12 billion in annual freight spend, identified the customary types of charges and rates implemented by shippers beyond the basic linehaul fees to help organizations better understand how their accessorials compare to market competitive standards.

Common accessorials revealed in the survey include detention with power and stop-off charges – both of which contribute to and affect the bottom line to a shipper’s costs. However, the survey showed that 93% say fuel surcharges (FSC) is the most common accessorial they have to deal with.

So, where does a shipper go from here? Try answering these questions to help you get headed in the right direction:

• Do you know where your accessorials and rates stand in the market?
• Do you need a current benchmark on market data?
• Do you know your competitive landscape and are you optimizing freight flow and shipping modes for savings and efficiency?

So what’s next? Check out these important steps to start benchmarking your accessorials to uncover savings:

• Compare your spend to the market rate and receive comprehensive reporting that outlines rates and accessorials. There could be other areas of opportunity where you can optimize and plan out your next steps.
• Identify gaps across your supply chain and be armed with a prioritized action plan to save on your total freight spend.
• Stay on top of the market with frequent benchmarking reports, whether quarterly or annually for continuous optimization.

In short, CPG companies are looking to reduce operational costs while also adapting to shifts in consumer behavior and retailer requirements, and those companies that invest in the right processes are in a position to successfully navigate current and potential future challenges.

Want to know more about benchmarking freight accessorials? Check out our Transplace Accessorial Benchmarking survey results.

 

Mark McEntire currently serves as Vice President Transportation Management Operations for Transplace. Mr. McEntire’s 25 years in transportation and logistics include experience with JB Hunt Transport, Inc. and Penske Logistics. His functional responsibilities have included operations, sales, customer service, and contract logistics. In 2001, he completed a two year Six Sigma certification program with General Electric and is a GE certified Black Belt. In June 2009, he became certified as an APICS CSCP. Mr. McEntire earned a Bachelor of Science in transportation and logistics from Arkansas State University.