Truckload rates or LTL discounts dictate carrier selection based on the price of a single shipment. For example, an 8,000 lbs. shipment from Chicago to Atlanta costs $1,335.79 as a full truckload and $649.66 as an LTL shipment, making mode selection straightforward. However, this difference in charges is rarely considered in freight routing between multiple carriers and mode options.
Challenges with Traditional Optimization
Manual and third-generation optimization processes struggle to create genuinely low-cost routes because they only consider one rate for each origin/destination pair. For instance, a shipper may have five truckload carriers with different rates between Chicago and Los Angeles, but only one rate is used in the planning process. Shippers employ various strategies to determine this one rate: some average all rates on the lane, others use the rate of their primary carriers, and still others use a market rate from a rating service or load board. Regardless of the method, the planning process struggles to create low-cost routes because treating all carriers the same limits the options considered.
Differences in truckload and LTL charges impact the inclusion of specific shipments on a multi-stop truckload and the sequencing of stops on a load. Lane-by-lane freight costs on a national basis vary by an average of 18%, with some lanes showing even greater variances. These variations stem from carriers needing to reposition equipment, making lower-rate lane options beneficial for both carriers and shippers. Individual carrier networks shift slowly but constantly, with carriers routinely adjusting rates to balance their flows. These variances create opportunities for significant freight savings that older optimization processes cannot achieve.
Advantages of Modern Optimization
When multiple carrier rates are considered, the number of routing options increases exponentially. Load optimization takes all these options into account, achieving lower overall costs. This advanced approach allows shippers to leverage the differences in carrier rates, creating more efficient and cost-effective freight routes. By embracing load optimization, companies can navigate the complexities of carrier selection and route planning, ensuring optimal outcomes for their logistics operations.
Customer Success Story
One EVOS customer provided an excellent example of this. The client ships product from Chicago to Chattanooga and Atlanta via truckload consolidation. This consolidation yields two candidate routing scenarios:
Routing Scenario One:
- Pickup: Chicago, IL
- Drop 1: Chattanooga, TN
- Drop 2: Atlanta, GA
Routing Scenario Two:
- Pickup: Chicago, IL
- Drop 1: Atlanta, GA
- Drop 2: Chattanooga, TN
Third generation optimization considers one average rate from Chicago to Atlanta of $2.30 per mile and an average rate to Chattanooga of $2.08. Based on these rates, Scenario One has a total cost of $1,764.10, which compares with Scenarios Two’s total cost of $1,765.92. Although the cost difference between the two options is minimal, Third Generation optimization correctly chooses Scenario One because it is $1.82 cheaper than Scenario Two.
However, when the logistics coordinator dispatches the load, not only does the routing change but the cost difference is much more significant. The shipper had actual rates from Chicago to Atlanta $2.25 and Chicago to Chattanooga $1.56. Using the actual rates with carriers, Scenario Two is 23% cheaper than Scenario One.
Conclusion
Route optimization with PlanTools™ will significantly improve the bottom line. This example is straightforward but imagine this issue with hundreds of shipments and additional transportation modes such as LTL and Intermodal. At a time of rate volatility and scarce capacity, load planners need to effectively utilize all the rates and services proposed by transportation service providers. PlanTools™ will help them do that.
