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Freight Strategies Planning and Costs Case Study

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Updated: Jun 19th, 2020

Summary

The freight strategies adopted by various companies often depend on the amount of cargo that they have to transport. For instance, it is possible to consider the operations of small businesses that produce different types of equipment. These shippers often rely on such a method as less than truckload shipping or LTL (Neu, 2013, p. 119). This term is often applied to describe the transportation of small freight (Neu, 2013, p. 119). It is important to find various alternatives to LTL because this task can be important for the economic performance of various businesses, especially those that produce a relatively small quantity of goods (Albert, 2013). These are the main questions that should be discussed more closely.

Problem

There are several difficulties associated with the use of LTL. At first, one should mention that these shippers have to pay higher transportation costs. As a rule, these costs rise by approximately 8.4 percent (Meyer, 2011, p. 5). It should be mentioned the carriers of such shipments have to set higher prices; otherwise, they may not be able to ensure their economic sustainability (Meyer, 2011, p. 5). The main issue is that the operational expenses of these shippers usually increase significantly. Thus, they find it more difficult to compete in terms of prices.

Additionally, the adoption of this approach can lead to significant scheduling problems for small shippers. Very often, they cannot coordinate their actions with distributors. In many cases, these businesses are forced to set higher prices for products. In the long term, their competitive position weakens, especially in comparison with large companies that can enter the so-called price wars, which often prove disastrous for small businesses. These are the main details that can be singled out because they show that freighting strategies can affect the operational costs of businesses and their planning capacity.

Significance of the problem

This problem has significant implications for various stakeholders. For instance, one can speak about the owners of small enterprises that cannot generate sufficient revenues. In many cases, their market share decreases. Apart from that, one should not forget about the needs of employees whose compensation can also decline. Finally, one should not forget about the interests of customers whose purchasing options can be very limited. Thus, this problem can create problems for many individuals and organizations. This is why this issue should be taken into account by business administrators and supply chain managers who need to improve the efficiency of the enterprise.

Development of alternate action

It is possible to consider several alternatives to LTL. For instance, businesses may decide to use the services of parcel carriers (Dennis, 2001, p. 23). This strategy means that the cargo should be divided into smaller units that can weigh at most 155 pounds (Dennis, 2001, p. 23). This approach enables businesses to reduce their expenses significantly (Mulcahy & Sydow, 2008). Nevertheless, there are some important problems that may remain unresolved.

In particular, parcel carriers cannot focus on the needs of only one carrier. Secondly, it may be difficult for some businesses to divide their cargo into these smaller units. This argument can be relevant to organizations that produce different types of equipment. This difficulty can affect those businesses that cannot launch large-scale manufacturing of goods. This is why the use of parcel carriers may not be applicable to various organizations.

Moreover, it is possible to mention such a strategy as zone skipping. It means that that the services of LTL carriers are used only when it is necessary to transport cargo over rather short distances. When the cargo is delivered to the hub, it is taken by a parcel carrier. This strategy can be helpful for the reduction of costs. However, one should keep in mind that a shipper will need to rely on the services of two or even more carriers.

The problem is that these carriers do not always coordinate their actions properly. As a result, the risk of untimely delivery can increase significantly. So, such shippers may not meet their legal obligations. This failure can produce even more adverse effects on a company because it can lose many of its business partners. This is one of the disadvantages that should not be overlooked by managers. This example indicates that zone skipping can lead to detrimental results.

Recommendations

On the whole, such businesses may consider such an option as the consolidation of freights. This approach is particularly beneficial for a group of producers that are located in the same region (Albert, 2013). Moreover, in many cases, they have to send cargo to the same destination (Mulcahy & Sydow, 2008). For instance, one can mention Chinese manufacturers that need to transport their cargo to the United States and Europe. Certainly, this strategy requires the coordination of different manufacturers. Nevertheless, this approach helps small companies reduce their operational costs. So, they will be able to withstand the competition of larger companies. This is another benefit of this approach. Therefore, businesses may consider the consolidation of shipments because this strategy combines cost-efficiency and reliability.

Reference List

Albert, M. (2013). LTL. Web.

Dennis, W. (2011). Parcel and Small Package Delivery Industry. New York: Springer.

Meyer, M. (2011). Vehicle Routing under Consideration of Driving and Working Hours: A Distributed Decision Making Perspective. New York, NY: Springer Science & Business Media.

Mulcahy, D., & Sydow, J. (2008). A Supply Chain Logistics Program for Warehouse Management. New York, NY: CRC Press.

Neu, F. (2013). Cutting Costs: Successful Strategies for Improving Productivity, New York, NY: ABC-CLIO

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IvyPanda. 2020. "Freight Strategies Planning and Costs." June 19, 2020. https://ivypanda.com/essays/freight-strategies-planning-and-costs/.

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