Fourth Generation Optimization considers variance in carriers rates and services

 Everyone knows that the truckload rates or LTL discounts dictate carrier selection based on a single truckload or LTL shipment price. An 8,000 lbs. shipment going from Chicago to Atlanta cost $1,335.79 to send as a full truckload and $649.66 as a single LTL shipment, so choosing which mode to use is a simple comparison. However, seldom is this difference in charges considered in the freight routing between multiple carriers and mode options.

Manual and third generations optimization processes struggle to create genuinely low-cost routes because they only consider one rate for each origin/destination pair.  As an example, a shipper may have five truckload carriers who have provided different rates between Chicago and Los Angles, but only one rate can be considered in the planning process.  Shippers employ a variety of strategies to determine the one rate that will be used.  Some shippers use an average of all rates on the lane, some use the rate of their primary carrier(s) and, still others use a market rate received from a rating service or load board.  No matter what method is used to determine the one rate the planning process will struggle to create genuinely low-cost routes because all carriers are treated the same which limits the number of options that can be considered.

Differences in Truckload and LTL charges can and do impact the inclusion of specific shipments on a multi-stop truckload and the sequencing of stops on a load.  Lane by Lane freight costs on a national basis vary by an average of 18% with variances on some lanes considerably higher.  These variations can be attributed to a variety of reasons not the least of which is the carriers needing to reposition equipment so the utilization of lower rate lane options can be a win for both the carrier and the shipper. Individual carrier networks shift slowly but constantly with carriers routinely adjusting rates to balance their flows. These variances in carrier rates create opportunities for significant freight savings that cannot be achieved with older optimization processes.  The number of routing options increases exponentially when multiple carrier rates are considered, and Fourth Generation optimizers take all of these options into account, achieving lower overall costs.

One Evos customer provided an excellent example of this.

The client ships product from Chicago to Chattooga and Atlanta via truckload consolidation.  This consolidation yields two candidate routing scenarios.

Routing Scenario One:

Pickup              Chicago, IL

Drop 1              Chattanooga, TN

Drop 2              Atlanta, GA

Routing Scenario Two:

Pickup              Chicago, IL

Drop 1              Atlanta, GA

Drop 2              Chattanooga, TN

 

Third generation optimization considers one average rate from Chicago to Atlanta of $2.30 per mile and an average rate to Chattanooga of $2.08.  Based on these rates, Scenario One has a total cost of $1,764.10, which compares with Scenarios Two’s total cost of $1,765.92.  Although the cost difference between the two options is minimal, Third Generation optimization correctly chooses Scenario One because it is $1.82 cheaper than Scenario Two.

However, when the logistics coordinator dispatches the load, not only does the routing change but the cost difference is much more significant. The shipper had actual rates from Chicago to Atlanta $2.25 and Chicago to Chattanooga $1.56.  Using the actual rates with carriers, Scenario Two is 23% cheaper than Scenario One.

Conclusion:

Route optimization with a Fourth Generation Application, such as PlanTools™ will significantly improve the bottom line.  This example is straightforward but imagine this issue with hundreds of shipments and additional transportation modes such as LTL and Intermodal.  At a time of rate volatility and scarce capacity, load planners need to effectively utilize all the rates and services proposed by transportation service providers.  PlanTools™ will help them do that.

Tom Livernash

 

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