The Distribution Director for one of our packaging clients in Wisconsin was challenged with limited transportation data visibility and increasing freight costs. As transportation cost was rising more than the average double-digit gains the industry experienced, both finance and leadership began to look for a stable budget solution to offset costs and grow profit margins.
As a result, the Distribution Director was looking to outsource transportation management to a top 5 US broker in MN. While this may appear to be the easiest solution on the surface, I’ve learned that many brokerages are using traditional TMS platforms that do not deliver cost savings or predictability for manufacturers who ship LTL heavily (40% to 50%+)
1) Most Traditional TMS Solutions Are Unable to Cost Effectively Choose Between LTL and FTL.
While TMC, Oracle, JDA, MercuryGate and others are powerful systems for truckload, there is a big growth opportunity when it comes to LTL and parcel. If you review Gartner's Magic Quadrant ratings and other traditional TMS platforms, you’ll notice that the analysts say they are “weak” in parcel - and LTL is much more similar to parcel than truckload. I’ve learned that manufacturers using large brokerage solutions for transportation management were losing $2M in profits because their TMS is routing based on simple rules and not able to take advantage of the low-cost solution.
For example, when an order comes into the TMS, traditional platforms utilize business rules to select the mode used. A common rule is ‘all orders over 15,000 pounds move truckload’ and ‘all below 15,000 pounds move LTL’. The problem is that there is significant overlap in the rates near the breakpoint meaning that better solutions may exist if the rules are not followed. It is common to find inexpensive truckload rates on backhaul lanes for example, so the 13,000-pound shipment may be less expensive to move truckload. Since most TMS platforms do not look at a full array of solutions, manufacturers lose 15 to 20% in cost savings and this is a significant impact to shippers that have a lot of LTL and truckload.
A small number of next-gen full-service TMS solutions in the market have solved this challenge by looking at all modes for a shipment rather than limiting to just one mode on the front end. When this is implemented, cost savings are seen quickly as each order is getting the attention it deserves.
2) Most Traditional TMS Solutions Are Designed for Truckload Freight - Not LTL Cost Savings & Rate Accuracy
Part of the reason why there is a major growth opportunity when it comes to LTL and parcel is that the technology that many 3PLs are using (TMC, Oracle, MercuryGate, JDA) were built in the nineties. They were designed for truckload freight that has a simple price structure of rate per mile or a flat rate per movement. But that is not how LTL movement is rated.
For LTL, it’s a complex tariff matrix price structure that is based on a number of variables including length of haul, weight, shipment dimensions, and miles. This doesn’t include the complexity introduced by discounted tariffs and the accessorials that LTL carriers can add. When an order comes in, traditional platforms navigate to a rate in the matrix. Issues arise when the actual shipments are different from the order – a lower cost solution could have been found with another provider and worse, a billing discrepancy now exists. Only a select few full TMS providers are using API and getting actual real-time pricing from the carriers. If the shipment characteristics vary from the order, the rate within the TMS can be adjusted eliminating the discrepancy.
The other dynamic impacting this area is that LTL carriers add new lanes and change service areas frequently. When the traditional TMS is using a static routing guide determine at a point in time, usually during a bid, the cost savings that can be seen from new lanes and service areas are missed. The next generation TMS solutions will use API calls to find the right rate using all the carrier’s lane information.
3) Brokerage 3PLs, Not Manufacturers, Maintain Control of Shipment Data and Carrier Relationships with Traditional TMS
Transparency is key, for operations leadership and for our customers, as we live in a world where the information is more valuable than the freight. As long people can accurately see where their shipment is and what will happen next, they can plan-forward and notify to placate their clients. However, traditional TMS platforms force shippers using brokerage solutions to lose their direct line of sight to carrier relationships and margin management to the 3PL. For example, the ecommerce team for a global manufacturer using a top 25 LTL carrier knew they were overpaying millions of dollars, but was unable to provide proof for lack of transparency.
Within this article, I spoke to cost savings and freight spend predictability and stability. However, there are also impacts to the customer as traditional TMS platforms do not have the capability to guarantee service performance with short lead times.
Manufacturers Do Not Have to Choose Between a Parcel, LTL and FTL TMS
While manufacturers shipping LTL are being under-served by tier 1 TMS technologies (click here to see additional ways), I’ve learned that many of the LTL and parcel TMS platforms cannot effectively or efficiently support truckload. Although it’s limited, there a few TMS options that can fully support all modes.