The Complete Guide to Freight Management  Service Solutions

Definition of Freight Management

The technical definition of freight management is where a shipper hires a logistics service provider (LSP) to efficiently and strategically move freight across its network of customers (outbound) and vendors (inbound) using various modes of transportation, intermediaries, and technologies by employing their logistics and supply chain expertise and assets.

A freight management logistics service solution brings together everything a logistics service provider has done internally to build its business profitability through consistently delivering a solid service at a value price for the shipping community and bundles it into a service module that it then sells to shippers.

The essence of freight management is the shipper is getting a packaged service program that is the playbook the logistic provider has perfected, while operating its own business.  

By employing the playbook the shipper will accelerate and transform its logistics and supply chain execution and strategy into a competitive advantage with higher service levels, more capacity and a lower all-in cost, which are the three main goals of all logistics professionals.

Encompassed in the service bundle is a cloud transportation management (TMS) technology platform, consistent and repeatable process, and human capital. Plus, there's knowledge leveraged that facilitates effective, efficient and expeditious coordination between carriers and shippers and ensures the shipper’s products are delivered within budget and on-time.

The end result shippers like to hear is the professional logistics team of experts is on hand 24/7/365 to manage the logistics process with speed and consistency that results in better service, greater predictability and lower total costs.

Various Names Given to Freight Management

For years freight management has come in different flavors as logistics service providers (LSP) try their best to explain what their bundled service solution plan is and what it does for its clients.

Program names shippers will find when Googling these programs will include:

• Managed TMS
• Transportation Management Services
• Inbound Freight Management
• Outbound Freight Management
• Managed Logistics Services
• Supply Chain Management
• Managed TM
• Managed Transportation Services

The lack of our industry locking down the name for outsourcing the execution and management of a shipper’s freight program not only confuses everyone, but also makes it difficult for the shippers to find the best service provider for their company because they are not getting the full listing of companies that provide the service.  

In addition to not finding the best company for their specific needs, many shippers do not have a full understanding of what a freight management program is and why it is such a beneficial service solution for their company’s various logistics and supply chain challenges they’ve been trying to solve for years.

Evolution of Freight Management Programs

The last overview topic of freight management before jumping into the nitty, gritty details of the service logistics providers provide is to understand how freight management programs came to be and where they sit in the logistics service tiers.

Freight management service programs came about as freight brokers and the top transportation management software (TMS) systems upped their game.  As TMS technology began to move beyond one-for-one transactions; the amount of data available to capture grew and the transition of the TMS platform to the cloud changed the game.

What it did is turn a freight system with mountains of transactions into one of data that users could automate to learn and predict events through intensified reporting and analysis.  What then followed was the advent of the freight management service solutions market where logistics providers bottled their magic and sold it to shippers.  The service came at a much lower price than a shipper could purchase a top tier TMS themselves, while it also brought tremendous savings to the shipping community on freight rates and operational expenses.

Questions on Freight Management Answered in this Article

We are here to say the confusion on the naming convention may never end, but what a freight management service solution is will be cleared up over the next several pages where we will answer the who, what, where, when, why, how and cost of freight management programs.

• What is freight management?
• What all is included in freight management service solutions?
• What should my company be looking for in a logistics and supply chain program freight management program?
• What are the benefits of a freight management service solution?
• What are the pros and cons of a freight management outsourced logistics solution?
• Who are the largest providers and why may they or may they not be a good fit for your company?
• Who benefits from freight management?
• When should you or should you not consider a freight management service?
• Why would my company want to move its freight management to an LSP?
• How much does a freight management service solution cost and save?
• How does freight management work?
• How does a freight management service get implemented?
• How long does it take to get a freight management service implemented?
• What are some of the pros and cons that we need to consider on a freight management program?
• Why do LSPs and 3PLs like the freight management business model? 
• Why has freight management become such an important component of business?

TOP

The ability to deliver freight on time to the right destination, in the right quantity, damage-free, efficiently, report on it, and all at the lowest possible cost, has always been critically important to businesses.

Operating in highly competitive markets, they strive to meet customers where they are in their buying requirements.

By having an efficient supply chain, a company can operate with leaner inventories, just-in-time manufacturing, tighter delivery windows, omni channel distribution strategy and higher consumer fulfillment expectations driven by ecommerce, while driving down operating costs in what continue to be very difficult freight markets.

Reasons Why Companies Employ a Freight Management Company

While the three key components companies drive their logistics and supply teams to are lower freight and operating costs, better access to freight capacity and higher service levels, there are numerous reasons why shippers decide to work with a third party logistics company to execute a freight management service solution.

So, the drivers are always the same, but the reasoning behind the actual decision for every company to outsource freight management is different.

Below are the most common drivers of why companies turn to a freight management service:

• Service KPIs Suffering
• New Technology Required
• Increasing Logistics Costs
  • Operating
  • Freight
• Project or Seasonal Volume Spikes that Cannot be Managed Internally
• Continuous Growth that Becomes Harder to Support Internally
• Business Model Changes
• Geographic Changes
• Business Matures
• Change in Key Personnel
• Launching a New Service or Product Within the Business
• Desire to Manage Inbound Freight for Cost and Process Flow in Combination with Outbound Freight Flows

Basics of Freight Management

While there are several facets of a freight management service solution which will be covered shortly, the essence of the program on a daily basis is the logistics service provider (LSP) plans, executes and manages the shipper’s motor carrier contracts on its behalf.

So, instead of the shipper’s own internal personnel planning and executing their freight shipments, they are leveraged by the LSP that works on the shipper’s behalf.

At the onset of a freight management program, the logistics provider performs an RFQ (request for quotation) to negotiate the motor carrier capacity and rate commitments for the program, which is used to build out the shipper’s network requirements.

The rates the LSP assembles on the shipper’s behalf are the freight rates directly from the motor carrier, meaning a margin is not added onto the freight rate structure. This provides full transparency on the actual rates a shipper will be paying. As part of this process, the logistics provider will assist in the signing of the motor carrier - shipper contract.

We’ll get more into savings and pricing later in this article, but it does make sense to make a quick comment on the freight contract pricing. As mentioned, the freight rates used in the freight management program are the actual rates, making this one of the first areas shippers will save on their total freight spend. The logistics provider makes its money on a service fee, which is at a much lower percentage than what they would charge as a freight broker in a shipper - broker arrangement where typical industry margins are:

• Truckload: 8-12%
• Intermodal: 6-8%
• LTL: 12-18%
• Expedited: 15% and up

Details on Logistics & Supply Chain Services Provided within a Freight Management Service Solution

Whether freight management is called MTS, Managed TMS or Transportation Management Services it all operates essentially the same, which the below graphic outlines in great detail.

Over the next several paragraphs we will take a deeper dive breaking down the details further.

1. Business Process Outsourcing

First and foremost, freight management is outsourcing the freight execution from tender through final settlement with the motor freight carrier.

The logistics provider brings a shipper’s inbound and outbound freight movements into its TMS to maximize the best service at the least possible cost.

Quite often a shipper will have an outbound freight management or an inbound freight management program, so they can be split. But for the best results, we recommend pulling it all together for the deepest and most transparent supply chain intelligence possible.

To sum it up, the LSP plans and executes freight across the various company silos to drive for as close to a seamless logistics and supply chain as possible.

2. Client Network Collaboration

Under this category, the LSP pulls together all freight moves to optimize a shipper’s supply chain network for best service and price.

The TMS is the facilitator of the flow of data and information bringing together the key stakeholders in the supply chain: vendors, customers, freight carriers, operations, etc.

3. Strategic Carrier Management & RFP Execution

If you pull nothing more from this article please know freight savings, more fluid capacity and better service does not come through an annual RFP with internally focused targets.

Freight savings comes through a well thought out strategic approach to the market, while also including all stakeholders that touch inbound and outbound freight shipments.

More on Strategic Carrier Management & RFP Execution Under Freight Management Programs

The other ingredient to include in the RFP process is that of a market benchmark. These come through any number of freight consortiums that pull in millions of freight transactions comprising billions of dollars spent throughout the year.

The “right time” would not be in the 4th quarter or at any “peak” during the year. Freight pricing tends to be done on what is known versus the unknown. For whatever reason, pricing teams tend to think the cyclical freight market is always going up and peaks always remain in style.

Please see the example below where that is clearly not the case.

To add to the discussion on the strategic direction of carrier management, those in the industry know the shippers that have smooth running docks and stick to their word as well as those that flip from year-to-year. So they do price accordingly. That means it may take a couple of years before the full fruits of your labor come through all aspects of your organization.

We see the above situation many times where we could not bring everything together for our client until the second year because of prior bad habits, even for those companies that were under a freight management program with another of the top service providers.

The bad habits could be payments, not having carrier friendly docks, or being a known flipper on carriers brought into the business every year.

4. Carrier & Modal Solutions

As part of the daily execution of business by the 3PL, the TMS used for the freight management program shops the best contract and service on the lane for what is called waterfall tendering. In these cases, the contract carriers are given the opportunity to accept a load tender based on price and its availability.

Also under the shipment execution and management side of the equation, the shipper’s total volume and delivery requirements are analyzed within the TMS for freight consolidation and modal conversion opportunities to save freight costs.

5. Real-Time End-to-End Visibility

Under today’s sophisticated logistics and supply chains the data is often more important than the shipment itself. Real-time visibility is a critical piece of the data flowing into and out of the TMS.

With it customer service and sales can report to its customer when to expect their shipments and purchasing can inform its operations team when to expect the goods for manufacturing or shipment.

The freight management company uses the real-time visibility to ensure timely pick-ups and deliveries to meet the requirements outlined by its client. At times that requires the freight management provider to recover what is on track to be a failure based on algorithms and electronic transmissions from the carrier base, although the majority of shipments move through as planned.

6. Reporting

Again, data is often viewed to be just as important as the shipment itself.

Freight management reporting benchmarks the progress of the freight management service solution against contractual KPIs, the freight management provider, the carriers in the program and the behaviors of all the other stakeholders in the execution of the supply chain.

The reporting also gives key details on what worked and what did not work that drive the continuous improvement flywheel effect of the freight management program.

More on Reporting

A few of the critical data points required for continuous improvement in a supply chain include:

• Tender acceptance rate of the motor carriers on each freight lane
  • The litmus test is having the right carriers on the lanes to perform to the highest service levels and best price
• The percentage the freight management program can execute shipments with the contracted carrier base
  • The depth and strength of the carrier base is critical to stay out of the highly volatile freight spot market
    • There should not be more than 2.5 to 3% of the freight moving outside of the contractual motor carrier base established for the freight management program
• On-time pickup and delivery percentages
  • This is the measurement for service
  • It also can provide insight as to the performance of various shipping or receiving docks
• Freight costs by lane versus the price other shippers are paying in the same freight lanes
  • Many view this as the key to how well a freight management program is being operated
  • The point here is to keep an eye on internal commitments and also the market rates, which can be reviewed through the various freight rate consortiums that only the best freight management companies access

The above are the critical measurements to evaluate for moving the program forward in cost and service. And yes, there are plenty more KPIs that should and will be measured in a freight management program.

7. Tender and Shipment Management

Tender and shipment management is the blocking and tackling process of moving the shipper’s freight and the transportation management system the logistics service provider utilizes does the heavy lifting.

The key components of tender and shipment management are order management, load planning, appointment scheduling and event & exception management.

More on Tender and Shipment Management

The TMS can take in the shipper’s freight move requirements by ready date and required delivery date, the walks through the process in the follow manner to optimize cost and service:

1. Optimize for freight consolidation and pooling opportunities
2. Evaluate modal conversions, like moving freight from truckload to intermodal
3. Manage the waterfall tenders through to the contract carriers until the freight is 100% accepted

While the tendering process is the operation that builds the shipping plan for best service and price, the management of the shipments after the loads have all been booked is the critical piece of freight management which again the TMS does the heavy lifting. The transportation management software system is constantly receiving shipment statuses from the carriers moving the freight under the freight management program. The TMS takes this information and does its work analyzing potential shortcomings in the statuses received to create exception reporting that indicates shipments with potential failures.

The various potential failure reports are the exceptions where human intervention is required to ensure the shipment makes the required delivery window. The dedicated service team, which is a hallmark of the freight management program, is the group that manages the exception through additional communications to the carriers to understand the situations and whether a recovery is required or the freight will still be a successful on-time delivery.

The dedicated freight management service team is far more adept at monitoring its freight and knowing the levers to pull for the best possible KPIs because it knows the characteristics inside and out. A freight management client can rest easy by having their dedicated team in place and if there are questions they do not go into the general pool of support in off hours that historically is the weakest link in the standard logistics operational models (by task and shift set-up) the largest non-asset freight companies operate.

Before moving on from the tender and shipment management process of a freight management program it is important to revisit the freight optimization comment on the potential of it being no more than a really cool three dimensional math equation. This is not an uncommon situation as many freight optimization software is nothing more than a math optimizer because either it is very limited in what it considers in its calculations and / or the person running the optimizer is not well versed in how freight really operates, so they miss activities that would cause the optimized freight plan to be nothing more than a useless paperweight.

8. Freight Audit & Payment Services

Freight payment is the final step taken in a shipment’s life cycle, but often given a backseat to the overall freight management process which is shameful.

Even the best freight audit and pay companies don’t give the process of auditing and paying the freight bills the attention they should.

More on Freight Audit & Payment Services

The following outlines the freight audit and pay process and how the very best perform this function:

• The TMS captures the expected cost of the freight move
• The motor carrier sends in their invoice, BOL, accessorial and other supporting paperwork electronically
• The freight audit and pay software pulls in the expected costs from the TMS and matches it with the actual costs on the freight invoice
  • The best freight audit software is optical read-capable, which allows it to capture the freight load reference number and the various costs found on the paper invoice. From there it can compare and automatically process through the invoice for payment by accounting or send it to an exception file for the freight bill processor to investigate why there was a difference in the actual versus expected charge.

The above sounds simple enough and it is.

From the freight carrier perspective, they are the heart and soul of the freight management solution because without them the freight would not be moving over the road. With that said, it is critical to pay and communicate with them timely and accurately, which also being on the seller side of freight through our freight brokerage division I have to say this is the exception to the rule.

Whether here at InTek are various other freight providers I have worked at over the years have found that the freight audit and pay function often is a detriment to the shipper and carrier relationship than it is a benefit. Often the shipper outsources their freight payment processing to a freight audit & pay company because the number of transactions overwhelms their accounting department, so they think they are helping to be better but the reality is they do not know how poorly their carriers are being treated and paid.

On numerous occasions the freight audit and pay company asks for the same info over-and-over again and does not pay for months. I’ve even seen this process rinse-and-repeat for a year on some invoices before the freight provider is paid for the same services that they are scrutinized on pick-up and delivery based on a 15-minute cycle.

The other aspect of the interaction between the freight audit and pay function is accurate and timely communication, which again is often poor at best.

All in, the freight audit and pay function should be considered a customer service opportunity for shippers to hold and also attract the best motor freight carriers for their freight management program.

The last point to discuss, as it relates, to the freight payment function is capturing the cost data accurately to drive the on-time and cost savings reports and market benchmarks making it a critical step in justifying why a shipper decided to pursue a freight management service solution for its future success.

9. Freight Claims Management

Freight claims are the bane of managing freight, although a necessary evil. While the freight management company is not on the hook for the claim, unless they did something detrimental in how it executed the freight movement, the logistics provider does manage the freight claim process from start to finish.

The 3PL is not only versed on how to expedite the claim process, it will also go one step further and use their reporting and market knowledge to route the freight through the better providers to reduce the risk of an OS&D claim.

10. Forecasting & Cost Control

Forecasting is a two way street where the shipper and the logistics service provider hired for the freight management service program work together on capacity requirements by lane to ensure there is plenty of contract freight capacity on the origin - destination (O/D) pairs.

If there is not enough or the reporting has been sketchy on service and / or capacity on a given lane, then it is up to the freight management company to bolster the capacity through a current contract carrier, an additional contract carrier or if just a short term surge under the logistics providers competitive spot market capacity.

11. Analysis and Strategy

The very last point to be made under what a company receives in a freight management program from a logistics provider is analysis and strategy formulation.

The LSP will take the mountains of data it collects within the transportation management system they operate on the behalf of its client and comb through the details and combines it with their market data and industry knowledge to help drive continuous improvement and drive bigger questions to address strengths, weaknesses, opportunities and threats (SWOT analysis) it finds in company’s logistics and supply chain network.

A freight management program touches every aspect of a company’s business, which we’ll outline at a high level in this section. In addition to who benefits the most from freight management solutions, but also we’ll dig even deeper into the benefits of managed logistics programs.

Who Specifically Is Helped by a Freight Management Program

Transportation and Logistics Managers

Freight management providers help shippers save time and money by leveraging their transportation network, prices, technology, capacity and economies of scale. So, instead of a company’s logistics team juggling activities across multiple carriers and brokers the team can focus on a single partner.

By outsourcing the daily freight activities the logistics team can work on the strategic direction both internally and externally to best position itself in the logistics and supply chain activities to drive a competitive advantage.

Chief Financial Officers

As the business grows, so does the transportation budget. The freight management LSP leverages the best-in-class in TMS technology, people, knowledge, network and proven process to deliver an ROI within months. And once the initial investment is paid for, the freight management program continues to drive to the least cost options at the highest service levels, while also maximizing the flow of goods to improve the order-to-cash cycle.

Chief Executive Officers

With an eye on driving the best product through the market, CEO’s can rest easy knowing their logistics and supply chain worries can be put behind them so they can focus on what drives long term value in the market their company serves.

Chief Sales Officer

Sales is all about generating new and different revenue streams to increase their company’s stickiness with customers and increase market share.

The last conversation any sales person wants is to take calls and track down an order that was sold, but not delivered making in-stock backorders the measurement they never want to worry about and that is where a professional freight management company excels.

Through its systems and people a logistics company’s freight management program will efficiently and effectively move products through the sales channels and provide accurate reporting on the order from pick-up to final delivery.

Chief Operating Officer

Quite often the Chief Executive Officer's responsibilities are confused by outsiders, but that is because the COO wears many hats and they are dependent on what the CEO wants from their second in command.

The main role most COOs find themselves in is overseeing the Operations and Logistics & Supply Chain activities of the company, so for them selecting a top tier solution is invaluable, as it will their logistics views focused in on one partner that manages it all so they can keep focused on delivering the best product at the least cost out of its facilities.

All said, the entire C-Suite of a company will benefit with right freight management company.

Summary of the Benefits of a Freight Management Service Solution

Outsourcing non-core competencies has been a long-standing business strategy, but for many shippers the decision to outsource freight activities brings on a number of anxieties starting with the perception of losing control of what the C-Suite believes should be a core internal competency.

Top Benefits of a Freight Management Program

• Access to Capacity
• Full Supply Chain Visibility
• Unified Communication Platform for All Stakeholders
• Cost Savings
• Managed Transportation Solutions
• Risk Management
• ROI Improvement
  • Up to 5% Admin Savings
  • Up to 8% Cost Savings
  • Up to 40% Improved Services
• Improved Service KPIs
• Offload Non-Core Business Practices
• Technology
• Operational Control
• Reporting & Analysis
• Leverage Knowledge & Expertise of 3PL
• Freight Audit & Pay
• Improved Reporting and Analytical Capabilities

Since we’ll touch all the above through various veins in this article we’ll broaden the conversation here to that of a freight management solution empowers your company to focus its efforts and meet its business goals.

Managing the logistics and supply chain may feel like it should be a core competency because it is the first touch with your vendors and a last touch with your customers, it is complex and more than just having freight carriers under contract.

The freight market is ever evolving because of its supply and demand nature and because a freight contract is nothing more than a promise to move freight if the motor carrier has capacity at the time your company needs it. Add to it, the freight market is unique in that it is highly fragmented today with over 700,000 for hire carriers totaling $700 billion in freight spend within the United States.

In other words, if your company is under the impression that a quick improvement can be made or it can remain nimble enough in the market to be successful while trying to grow market share, move into new markets, develop new revenue streams and have the best team in place, then a freight management program should be considered.

So, the freight management program can greatly improve your chances and drive savings, improve service and create a better order-to-cash cycle that will make the company more profitable and give access to new funds to dedicate to the expansion.

Benefits of the Transportation Management System that Drives the Freight Management Program

With the digitization of the freight and logistics industry, shipments are monitored by algorithms; capacity is secured via online automated tenders and auctions when capacity is lacking; and scorecards and KPI reporting are distributed automatically each and every day with many eyes looking for perfection.

Any company that ships freight, whether a distributor, manufacturer or production operation, can best serve its markets when a transportation management system is plugged into its inbound and outbound freight moves.

The transportation management software (TMS) system streamlines and reports on the shipping processes turning the complicated freight market into somewhat simple packets of data that be managed and optimized on service and cost.

At times, shipping can be complicated, especially if you’re using different modes of freight transportation, like planes, trains, or freight trucks. Shipping is streamlined when you use TMS to plan, manage, and execute shipments. Whether you’re shipping a single parcel, pallet or twenty tons worth of your products, a TMS can identify the fastest cost-saving options for shipment.

Add to it, a TMS improves and enhances a company’s numerous processes by giving full transparency to the inbound freight to its facilities and the outbound freight to its customers with the end result of driving another competitive advantage for the company.

For more on the functions and benefits of a TMS please read Ways a TMS Benefits a Company's Supply Chain and A Complete Guide to TMS Freight Software: Market, Capabilities and Solutions for Shippers.

Detailed Cost Savings Associated with an LSP's Freight Management Service Solution

As we already mentioned, studies show a freight management program can save shippers between 2 and 10% on freight costs over going it alone. So let's dive deeper into these figures with typical savings percentages that come from various aspects of a managed transportation solution:

1. Planning & optimization

• 3-12% savings opportunity
• Analyzing shipments, rates and constraints
• Optimal mode/carrier/rate/route

2. Execution & advanced visibility

• 2-5% savings opportunity
• Automated execution tasks and workflows
• Rate/capacity/routing guide/carrier performance management

3. Settlement

• 2-5% savings opportunity
• Self-billing, freight audit and pay

4. Procurement

• 3-10% savings opportunity
• Secure/maintain durable rates/capacities
• Reduce broker dependencies

Combining Inbound and Outbound Freight for Highest Savings & ROI for a Freight Management Program

The best ROI is obtained through combining both inbound and outbound freight management under one program to combine the two freight flows together to optimize round trip utilization of carrier equipment within a shipper's supply chain.