My son came home the other day with a speeding ticket. Not a cheap one either – $300.
He thought the damage was the $300 speeding ticket… until I walked him through the rest of the bill. The insurance costs that go up (and stay up). The speeding record, which means the next officer will write a ticket when he might have written a warning.
The $300 fine quickly became the smallest number on the page.
Then, I realized something: freight is procured in the same way.
The rate on the load is the ticket, printed right where everyone can see it. The rest of the bill arrives later, scattered across line items that nobody traces back to the cheap truck.
Detention when that truck sits at your dock longer than planned. A missed service level on the load you tendered to the lowest bidder. The penalty your customer wrote into the contract for exactly that miss.
All of it lands on the same P&L that celebrated the rate.
I spent more than 20 years on the shipper’s side, running transportation, warehousing, and inventory, and the discipline that survived all three jobs is Total Cost of Ownership (TCO). Price the entire thing, every touch from factory to shelf, and then go to work on reducing the total cost.
The best lesson I ever received on this concept came from a lightbulb.
About 14 years ago, I was running imports for a large home improvement retailer, and LED bulbs had just hit the market at roughly 3x the price of an incandescent bulb.
They sat on the shelf, and the merchant came to us with a challenge: get the landed cost down.
The standard playbook only goes so far. You can squeeze the ocean line on rates. You can squeeze the manufacturer on unit cost. But both run out fast.
So, I had my team buy a dozen bulbs from our own store shelves and took them apart. Somewhere between 30-45% of every package was air. New product in a fancy box, but we were paying the ocean freight providers to ship exactly that. Air.
We proposed a redesign to the merchant and the manufacturer’s packaging house and we cut the wasted space roughly in half. That simple change would now fit about 20% more bulbs into the same container, and at about 48,000 bulbs per a container, that 20% quickly became real savings.
The container cost the same to move either way… but every bulb that we added now rode free.
That same math runs a truck.
A lot of the trucks on the road right now are either underweight or under-cubed, and the two problems mirror each other: heavy freight runs out of weight with cube to spare, bulky freight runs out of cube with weight to spare.
Put two shippers’ products on the same trailer so it hits weight and cube together, and the economics of that lane change. Pulling that off takes density, volume, and somebody watching the whole network.
Service belongs in the same arithmetic.
A 98% on-time guarantee costs real money; 95% costs less and eats a penalty here and there. Neither answer is automatically wrong. The deciding number is the third one, what a miss does to your standing with that customer, and that number never appears on a rate sheet.
For a mid-market shipper, standing is the whole game, because you can’t hide behind size. Run excellent on-time service and the reward tends to be more volume, because people give more business to partners who deliver. That puts service in the growth category.
Supply chain is a cost center. I run one and I won’t pretend otherwise; I’ve never met a shipper who books it as a value center.
What total-cost thinking changes is what that cost buys you. Take out the waste, price the whole bill, and the same budget starts buying room: on price, on service, on the accounts your competitors would love to take.
That’s your competitive advantage, coming from the line item that everyone else focuses on shrinking.
From the seat: The rate is the speeding ticket. Total cost is the insurance.
Next time: The build-vs.-buy moment. When adding one more freight hire stops making sense, and how the people who have made that call actually make it.
Annant Patel
Chief Commercial Officer & Asset Strategy Leader
KBX Logistics