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Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing by William R. Dorn, Joe Payne

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CHAPTER TWENTY-ONE

Analyzing Shipping Costs

IN CHAPTER 19, we discussed ways to reduce costs on small-package shipping and reviewed the discount structures available from FedEx and UPS. The discounts are off of a published tariff, and tariff rates change based on a combination of service type, weight, and distance (divided into zones). Additional fees are then assessed for fuel, dimensions beyond an established threshold, and enhanced services.

In this chapter we discuss analyzing less-than-load (LTL) freight costs. This shipping method has similarities to small-package shipping, but also some major differences. The chapter begins by detailing some introductory concepts related to shipping. If you are already familiar with the shipping industry, the differences between types of shipments and the cost structures of carriers, you may want to skip ahead to the section that details the baselining process.

AN OVERVIEW OF FREIGHT COSTS

Before getting into the details of LTL shipping, it is important to understand the difference between LTL freight and truckload freight. Truckload freight includes shipments of products that fill an entire trailer and are going from a single origin point to a single destination. That truck is entirely dedicated to your shipment. Conversely, LTL freight includes shipments that do not fill an entire trailer. The shipment could be one pallet of product or ten, but overall it does not take up the full capacity of the truck and can therefore be shipped along ...

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