When shopping for freight rates, some retail shippers look at a number of options from various carriers for a given lane, sometimes opting for the cheapest provider.
Because it seems like lower upfront freight rates would equate to shrinking logistics costs, in this scenario, the decision-maker at the CPG brand assumes they have saved their organization money.
However, this is not always the case with orders going to retail destinations that have high service requirements. Receiving locations at large retailers often have specific delivery specifications. Their distribution centers command certain carrier expertise to avoid chargebacks and other accessorial fees that reduce profitability.
By choosing carriers based on price rather than merit and the ability to execute shipments, you can leave your organization susceptible to ballooning logistics costs.
With cheaper trucks that appear less expensive upfront, you can expect dropped orders, late deliveries, rate hikes, additional fines, fees, and headaches that do not move your supply chain forward towards its goals.
Continually pursuing this route can lead to service failures and add up to substantial chargebacks, among other issues.
Cheaper Rates Don’t Always Equate to Savings for Retail Shippers
Booking a truck at a lower rate than the rest of the marketplace may sound like an effective way to save on transportation costs, but it is rarely a win to celebrate for CPG brands. More often than not, the cheapest truck fails to account for the real cost of delivery, missing order requirements in the process.
It is vital to have an accurate truck rate at the time of shipment. When specifications are not precise or established upfront, you may end up booking with a provider who cannot service your freight. This mistake can lead to additional costs and repercussions from customers.
Among those costs are things like retail compliance fines, service failure fees, and long-term relationship damage with critical customers. Let’s explore how those can add up.
Retail Compliance Fines
Compliance programs and scorecarding initiatives are now commonplace at retailers of note across the country. And many, like Walmart, continue to increase the stringency to meet the challenges of modern consumption realities.
Although there can be differences in the details, the thought behind each is the same. Big box stores want their vendors to get products into their supply chain promptly to avoid out-of-stocks.
If shippers cannot meet deadlines, retailers can inflict monetary fines to compensate for lost sales.
As these programs step-up challenges for retail shippers, choosing the right carrier has become increasingly important. A rate has become a secondary consideration for forward-thinking CPG brands trying to avoid the 3% cost of goods sold penalty for OTIF non-compliance. Instead, they evaluate a carrier’s ability to understand the stakes of retail logistics and execute on-time delivery.
Service Failure Fees
Some carriers cannot handle retail deliveries. Unfortunately, this information is often not disclosed before booking a shipment and can leave brands in a bind.
It takes recovery trucks, storage fees, redeliveries, and employees’ time to compensate for service failures resulting from low-budget carriers.
Working with the right carrier, who is best equipped to meet your delivery requirements, can prevent these costs from stacking up.
While service failures are unfortunately part of the industry, you can prevent many just by working with a carrier who understands retail delivery requirements.
Long-Term Retail Relationship Damage
Retailers are continually upping the delivery stakes for brands to keep up with changing consumption trends. This compliance effort was largely intensified by the fallout from COVID-19, where US consumers switched purchasing gears seemingly overnight.
Walmart now expects that its vendors meet a 98% on-time delivery standard across all modes and product categories. This jump in compliance standards has caused some CPG industry incumbents to view the change as an added opportunity to excel at delivery to further separate themselves from the competition.
The expectations from retailers are clear, as are the ramifications for not meeting those expectations. In a survey of retail buyers, Zipline Logistics found that “100% of respondents said that a vendor’s ability to deliver product on-time impacted their willingness to work with them.”
That unanimous agreement from industry professionals indicates that stakes have never been higher for retail shippers fighting for coveted shelf-space. Working with budget carriers can lead to missed deliveries and jeopardize critical retail relationships, which in turn can stunt your brand’s growth and cost you more than any initial rate savings.
Why It Pays to Work with Retail Logistics Experts
Booking the right carrier can be a challenge for those not well-versed in the complexities of retail logistics. That is why it is a benefit for retail shippers and CPG brands to look to value-added logistics partners to help augment their supply chain functions.
When launching a relationship with a big-box store, shippers must understand the implications of using a preferred carrier instead of just one with the lowest rate.
If your organization uses an ill-fitting carrier in hopes of finding marginal savings, it can cost you much more in the long run. Retail logistics experts have an extensive network that they can leverage to find the right carrier for your specific shipments.
These can vary by region, route, and customer, but using preferred carriers can save you in fines, fees, and headaches.
The marketplace dictates that it is more beneficial for retail shippers to work with strategic logistics partners.
Constant rate shopping does not equate to long-term transportation savings. Instead, CPG brands should work with a specialized logistics partner that understands the industry and adds continuous value.
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