Mode optimization (finding the most cost-effective shipment method for every shipment) is a useful cost-minimization tool. However, traditional methods can often lead to missed opportunities and foregone savings. Here are five essential questions to ask during mode optimization planning or evaluation.
Are you shipping a wide assortment of freight (lots of different classes, weights, and densities, etc.)?
Mode optimization generates the most cost-saving benefits for shippers moving lots of different products that fall under many different densities and shipping classes. The greater your freight variety, the more you stand to gain from investing in mode optimization tools and processes.
Are you setting and following breakpoints?
You should be, but you should be careful. A common mode optimization method is the setting of “breakpoints” or rules. For example, if a shipment is over 300 lbs, it automatically goes LTL. While these are a necessary part of mode optimization, setting without factoring in certain variables can lead to significant inefficiencies and unnecessary costs over time.
Are you calculating total landed cost?
A common mistake among shippers is failing to include accessorial charges when comparing shipping methods (for example, LTL vs. parcel). Doing so leads to suboptimal mode selection and shipments sent via the wrong transportation method.
Are you calculating dimensional weight?
Another common oversight in mode selection is the consideration of dimensional weight. Weighing and measuring the shipment is not enough. Many perfectly designed and developed decision rules fall short because they’re based solely on size and physical weight. For example, you have a process in place that ships everything over 300 lbs via LTL. A shipment comes along with a physical weight of 200 lbs but a dimensional weight of 350 lbs. If dimensional weight isn’t part of your calculations, this freight will be assigned the wrong mode, leading to a missed savings opportunity.
Are you factoring in minimum capacity charges?
Cubic capacity rules vary from carrier to carrier, with carriers setting different cubic capacity minimum charges to get the most out of their space regardless of the cargo’s weight. For example, think of a light density shipment of pillows vs. a high-density shipment of bricks. The pillows are light but take up a lot of space. The bricks are heavy but take up relatively less space. The same cubic capacity minimum charges apply in both cases. What this means is that these minimums should be factored into the decision-making process, particularly when high freight classes are concerned.