How to Reduce Freight Costs: Proven Strategies for Shippers

Managing freight costs is a critical component of a healthy supply chain. As market dynamics shift, understanding the factors that drive freight costs and knowing which levers to pull is essential for any shipper looking to protect their bottom line. This article provides a comprehensive guide to reducing freight costs, from identifying the primary cost drivers to implementing effective, data-driven strategies. We will explore proven tactics that industry-leading shippers are using to cut expenses, enhance efficiency, and build a more resilient transportation network.

Key takeaways

• Freight costs are influenced by multiple factors, including fuel, tariffs, accessorial charges, and carrier capacity, requiring a multi-faceted approach to management.
• Effective cost reduction involves a mix of strategic and tactical efforts, such as optimizing load fill, reducing empty miles, and leveraging alternative energy.
• A proactive approach to compliance management and carrier relationships is fundamental to achieving a cost-effective, long-term freight strategy.

The main drivers of freight costs

Freight cost refers to the total expense of moving goods from origin to destination. This is not a single, static number but a composite of various charges and variables that can fluctuate based on market conditions, regulatory changes, and operational details. To effectively manage these expenses, shippers must first understand what contributes to their total freight spend.

Fuel

Fuel is one of the largest and most unpredictable operational expenses for carriers, often subject to volatile price fluctuations that can significantly impact profitability. Shippers using Fuel Recovery, a market-based fuel reimbursement program, provide a more equitable approach by aligning fuel costs with the prices carriers pay at the pump. This approach creates greater transparency in pricing, ensuring carriers can focus on efficient operations, while shippers pay the true cost of fuel rather than relying on averages like PADD or DOE diesel fuel index price. In the end, this program fosters fairness, efficiency, and trust throughout the supply chain.

Linehaul rates

Linehaul rates, which represent the cost of transporting freight from origin to destination excluding accessorial charges, serve as a significant driver of overall freight costs. Fluctuations in these rates are heavily influenced by capacity. When capacity tightens, carriers adjust linehaul rates upward to balance supply and demand, leaving shippers susceptible to increased transportation expenses. Leveraging tools like real-time data analytics from Capac-ID allows shippers to gain visibility into these trends, enabling more strategic decision-making.

Accessorial charges

Accessorial charges are fees for services that go beyond standard pickup and delivery. These can include detention fees for keeping a driver waiting too long, charges for residential or liftgate delivery, and fees for re-consignment if a shipment's destination changes mid-route. While often unavoidable, poor planning and communication can lead to an accumulation of these extra charges, needlessly driving up total freight costs.

Dimensional-weight (DIM) fees

Carriers use dimensional-weight fees to charge for shipments based on their volume, not just their actual weight. If a package is light but large, it takes up valuable space in a truck or container. Carriers will bill based on the greater of the two: actual weight or DIM weight. Inefficient packaging that leaves empty space can significantly inflate shipping costs under this model.

Tariffs and geopolitical factors

Global trade policies, tariffs, and geopolitical events can have a direct impact on freight costs. New tariffs can increase the price of imported goods and components, while international conflicts can disrupt routing guides and create a need to find new carriers in the spot market. These upstream factors add a layer of complexity and risk to transportation budgets, requiring shippers to stay informed and agile.

Other cost factors

Several other elements contribute to your freight costs. These include general rate increases (GRIs) implemented by carriers, lane imbalances where there is more freight going in one direction than the other, and seasonal demand peaks that tighten capacity and increase rates.

Freight cost reduction tactics & strategies

With a clear understanding of what drives freight costs, shippers can deploy targeted strategies for cost reduction. An effective approach combines tactical adjustments with long-term strategic planning.

Strategic carrier selection and consolidation

Instead of awarding freight across a wide array of carriers, consolidating volume with a smaller group of core, high-performing partners can lead to significant benefits. This strategy allows shippers to build stronger, more collaborative relationships. Selecting asset-based carriers based on performance data, lane expertise, and reliability—not just the lowest rate—ensures better service and reduces the risk of costly disruptions.

Load and route optimization

Maximizing the space used in every trailer is a direct way to reduce costs. Load-fill optimization involves using software to plan how pallets and packages are arranged to fit as much product as possible. Similarly, route optimization helps plan the most efficient multi-stop routes to reduce miles traveled. Leveraging backhauls—finding loads for a carrier’s return journey—also helps reduce empty miles and creates cost-saving opportunities for shippers.

Mode conversion

Choosing the right transportation mode is fundamental. While less-than-truckload (LTL) is great for smaller shipments, consolidating multiple LTL shipments into a single full truckload or converting truckload shipments to intermodal (truck and rail) can yield substantial savings. Each mode has its own cost structure and service level, and strategically selecting the best fit for each shipment’s needs is key.

Proactive compliance management

Effectively managing compliance can prevent unnecessary expenses. By ensuring all parties adhere to agreed-upon routing guides and contractual terms, shippers can identify deviations and address them before they impact the budget.

Other reduction tactics

Additional strategies include establishing a smart spot market strategy to secure capacity for unplanned shipments, investing in alternative energy sources to hedge against fuel volatility, and negotiating favorable contract terms, such as minimizing accessorial fees.

Common questions about freight cost reduction

Navigating the complexities of freight management often leads to important questions. Here are answers to some common inquiries.

If I’m not using the same benchmarking solution as everyone else, how can I offer a competitive price?

The key to competitive pricing isn’t using the same tool as everyone else; it’s using a better one. Many traditional benchmarking tools rely on broker estimates or historical load board data, which may not reflect true market rates. By using a solution that provides real-time visibility into a vast ecosystem of actual, shipper-transacted data, you can understand the true cost of transportation. This empowers you to negotiate with confidence and secure rates that are fair and competitive, based on what the market is actually paying today.

Can transportation management systems (TMS) help reduce freight expenses?

Adopting a TMS may not directly reduce freight expenses but can significantly streamline processes to improve efficiency. This can lead to long-term savings and better resource management, ultimately reducing logistics expenses.

How to implement freight cost reduction strategies

Putting freight cost reduction strategies into practice requires a coordinated effort across different levels of an organization.

For the C-suite and leadership

For executives, implementation is about setting the strategic vision. This involves championing investment in technologies like an advanced data analytics platform. It also means fostering a culture that prioritizes supply chain efficiency and empowers teams to pursue data-driven decisions. The C-suite should focus on key performance indicators (KPIs) like cost per mile and compliance rates to measure the success of cost-reduction initiatives.

For logistics and supply chain managers

Logistics managers are on the front lines of implementation. Their focus is on the tactical execution of the chosen strategies, analyzing transportation data to identify trends, pinpoint inefficiencies, and find new opportunities for savings. By collaborating closely with carriers and internal stakeholders, managers can ensure that optimization strategies are applied consistently and effectively.

Reduce freight costs with Network Intelligence

Effective cost optimization in logistics requires a strategic approach backed by actionable data and collaboration across the supply chain. By leveraging advanced tools and techniques to analyze transportation patterns and uncover opportunities, companies can unlock significant savings while maintaining or improving service levels.

Network Intelligence offers a powerful solution to achieve these goals, providing deep insights that drive smarter, more informed decisions. If you're ready to elevate your logistics operations and uncover new opportunities, explore how Network Intelligence can transform your supply chain today.