Analyst Insight: Every shipper is looking to reduce costs within their transportation operations. To do so, they need to prove the return on investment (ROI) of technologies deployed to reduce costs. Proving ROI requires companies to quantify the value that TMS technologies provide versus the cost of implementation and operation. ROI can also be achieved by optimizing operations. Some shippers will even choose to use the least-cost carrier to cut costs, even if they can’t meet KPIs.
Return on investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment or compare the efficiency of multiple investments. It is expressed as a percentage, and measures the return on an investment relative to its cost.
Shippers should deploy a transportation management system (TMS) to reduce transportation operations costs. TMSs improve carrier selection, increase efficiencies, and optimize and automate processes.
A TMS saves freight costs, leading to better ROI by improving carrier selection and route optimization, reducing errors from automation, and improving efficiencies. A TMS stores and organizes information about carriers, including their rates, lanes, services and performance metrics. A TMS will automatically prioritize preferred carriers during shipment planning by reviewing routing guides or pre-approved lanes.
However, shippers often choose a less costly carrier to cut costs for transportation operations. Shippers can demonstrate ROI even with preferred carriers by measuring the following:
Direct savings, including reduction in accessorial fees, and decreased freight costs through optimized routes and load consolidation.
Indirect savings including reduction in detention fees and time saved in planning and execution using the TMS.
Service benefits, including improved on-time delivery rates and increased customer satisfaction leads to higher retention or sales.
When shippers use preferred carriers, costs can be reduced by letting the TMS negotiate better rates based on volume or seasonal demand. Historical data can be analyzed to identify lanes where preferred carriers are underutilized or overcharging. A TMS also identifies opportunities to consolidate shipments to increase efficiency and reduce costs. Consolidating loads maximizes asset utilization with multi-stop routing or freight consolidation strategies.
Shippers should measure how preferred carriers contribute to reduced stockouts, improved on-time delivery rates, or customer satisfaction. They can calculate cost savings from fewer disruptions, lost sales, or expedited shipments that would otherwise occur with less reliable carriers.
Preferred carriers deliver value that translates into cost savings by:
Negotiating contract rates. Often, preferred carriers offer discounted rates in exchange for consistent and predictable shipment volumes. Preferred carriers may offer predictable fuel surcharges that reduce exposure to fluctuating fuel prices.
Consistent service levels. Familiarity with preferred carriers can minimize detention, demurrage, and re-delivery fees due to better-aligned operational practices. When carriers offer consistent performance, costs associated with late deliveries or penalties can be reduced.
Long-term collaboration and flexibility. During peak seasons, preferred carriers prioritize capacity allocation for their best customers. When shippers have a strong relationship with their carriers, they may receive flexible pricing during periods of fluctuating demand.
Reduced risk and liability. Preferred carriers often have established procedures to meet a shipper’s regulatory and safety requirements, avoiding fines or delays.
Outlook: Using preferred carriers and a transportation management system, shippers can reduce costs within their transportation operations while ensuring reliable and efficient transportation. ROI can vary depending on the operation’s size, the supply chain’s complexity, and the efficiency improvements the TMS delivers. By deploying a TMS, statistics show that most companies see ROI within 6–18 months, depending on the scale of the implementation and initial investment.
Resource Link: https://www.intellitrans.com/
