A fierce increase in freight costs last year caused a large decrease of savings that a great deal of consumer packaged goods (CPG) companies gained in other areas of their supply chains.
According to the - Time to Shift Gears: Top Trends in the CPG Supply Chain - report by The Boston Consulting Group (BCG) and the Grocery Manufacturers Association (GMA), freight costs rose dramatically by as much as 14 percent for CPG companies since 2014.
“Logistics savings were eroded by transportation cost increases of 14 percent, improvements in forecasting accuracy have not consistently led to lower inventories or better case-fill rates, and efforts to boost service by setting higher service targets did not bear fruit. CPG companies’ on-time delivery rates declined precipitously; more than 60 percent of companies failed to meet their delivery targets.”
What fuels the rising freight costs?
The causes for the fast rising transportation costs are varied and often complex, but according to the report, there are three major challenges fueling this trend:
- Capacity constraints
- Driver shortage
- Divers last-mile transportation issues
What is the answer to rising transportation costs for CPG companies?
About 60 percent of CPG companies are planning to increase their use of direct plant shipping (DPS), in response to rising freight costs. However, contrary to common belief, the data suggest that DPS is not necessarily the silver bullet. Although touted as a way to simplify shipping and cut mileage, DPS can actually complicate inventory management, routing, and loading, according to industry experts. In addition, companies that ship greater volumes through DPS tend to have poorer on-time delivery (requested arrival date, or RAD) performance.
How to respond to rising transportation costs?
With capacity constraints and escalating line-haul rates likely to keep transport costs high and rising for the foreseeable future. Adding to this the growing inventories and the increasingly dropping service levels, companies should arm themselves appropriately and strategically in order to achieve reduction of the freight spend.
Logistics costs reductions should no longer interfere with long-term strategic development. Chasing the lowest cost carrier for transportation could, despite the short-term gain, seriously affect long-term implications for service. Results from the 24th Annual Study of Logistics and Transportation Trends point out that rail and intermodal are suffering from the biggest declines in service. Shippers utilizing these modes experienced the greatest loss of service in three key areas: equipment availability, on-time delivery, and correct invoices. TL followed rail and intermodal in terms of loss of service performance. For this mode, correct invoices and on-time delivery were the problem areas.
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