How to reduce transport costs

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The market of transport services is getting more and more competitive. Carriers are no longer able to compete by reducing their profit margins. In order to survive in the new reality, logistics companies are forced to look for other ways to reduce transport costs. Who will benefit from this?

Raben truck

Times when customers had no knowledge of logistics solutions and relied only on information obtained from partner transport and forwarding companies are long gone. Currently customers' knowledge is so extensive that the moment of looking for a carrier is the last stage of closing the ready logistics solution.  A carrier's profile is already clearly defined at this point, costs are carefully estimated, and the only thing left to do is to reach the appropriate number of transport companies so as to ensure getting the best rates on the market.

For logistics companies this means that they must become a partner for the customer; they must anticipate trends and propose innovative solutions which will bring customers real savings. A simple reduction of rates by decreasing margins is no longer possible because, as the expectations of customers are rising, the environment where transport companies operate is also changing. On many occasions these changes directly influence the growing costs of transport of goods.

CHANGING ENVIRONMENT

The carriers' situation is deteriorated by the condition of the drivers' job market. It is estimated that at present the whole European Union lacks several hundred thousand of drivers and this shortage may grow in the coming years (which we wrote about the Knowledge Warehouse) . The law of demand and supply pushes up the salaries for this profession. Add to this the new minimum wage regulations implemented by individual European Union Member States, the ban on spending weekend breaks in the vehicle cabin, or the draft of the new EU law on posted workers, and the increase in costs on the side of drivers is unavoidable. 

Companies from Central and Eastern Europe are also struggling with the fluctuation of exchange rates of national currencies against the Euro. For instance, the value of the European currency expressed in Polish Zloty fell between December 2016 and May 2017 by 7.12%! This means that offers submitted for tenders at the end of 2016 (usually calculated in Euros) became unprofitable in May. During that time, Polish carriers lost 32 grosz on every Euro in their offers!

 

BEST ORGANIZED WILL WIN?

In order to operate effectively in the new situation, logistics companies are looking for cost reductions through the utilization of knowledge and more effective planning of transport processes. One solution of that type is synchromodality. As opposed to the traditional order, the customer does not contract a specific means of transport or the departure time in detail. The logistics operator himself chooses the optimal mode of transport, the route and transport time - in return, however, a lower price or bigger transport capacities are offered.

What savings can be achieved using this solution? For one of our customers, who in two months orders Raben Group the transport of approximately 400 shipments to 118 unloading places in 22 countries, a switch to synchromodality resulted in a 20% cost reduction!   Naturally, everything was achieved while maintaining 100% timeliness of deliveries.

Another solution allowing for cost cutting are short-term partnerships between competitive logistics operators. Temporary partners are able to utilise the network the other partner operates (usually rail connections). This allows for limiting the problems with unbalanced cargo flow and the low availability of the means of transport, whereas the customer benefits from reduced costs and the access to a wider range of services.

OWNER OF MODERN TECHNOLOGIES WILL WIN?

A way to reduce costs is also to use latest technologies in vehicles. Not so long ago we wrote about integrated convoys of autonomous vehicles, which are not just tested but which service linehaul connections in Singapore. Another interesting solution is the installation gas-powered engines in trucks - liquid LNG or compressed CNG.

Costs can also be reduced by increasing the capacity of vehicles. Using mega trucks may be limited by the European regulation, however rail is more and more willing to use this type of solutions. An example of that is the MARATHON project, whose aim is to create gigantic block trains. The first one was formed in 2014 in France by combining three drafts of carriages carrying goods from Germany to Spain.

The efficiency of the 1524-meter-long train, which weighed 4026 tons, turned out to be high. The cost of a ton-kilometre was reduced by 40% and the cost of the whole transport by 30%! It is really promising that such a solution allowed for reducing energy consumption by 5% in comparison with traditional transports.

CUSTOMER ALWAYS WINS AT THE END

Innovative solutions have become a standard in the logistics sector really quickly. It will definitely be similar with at least some of the methods of reducing transport costs described above. After all, the luckiest winner of the competition between operators in the TFL sector is always the customer who gets cheaper, more stable services better adjusted to his needs. 

 

 

19.07.2017
Aleksandra Kocemba

Aleksandra Kocemba

Intermodal Transport Manager

Intermodal Transport Manager at Raben Transport. Works in logistics since 2008. Author of many publications about intermodal transport.

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