The Impact of Freight Charges
LPS Contracts with Shipping Companies to Lower Your Transportation Costs
LPS has negotiated a very favorable agreement with FedEx, UPS and fregiht consolidators that result in our ability to significantly lower your transportation costs! How important are transportation costs?
What do transportation costs really cost?
In the lab industry, transportation costs for even very large distributor's averages 3% of the purchase prices inbound to their warehouse and 4% outbound to your facility. "Free" freight has always been one of the most sought after vendor concessions. Why?
Reason 1 – We have all been burned before. Think of that incredible bargain you saw on TV and when you went to order it you found that the shipping and handling charges came out to more than the price of the item. So mentally we do whatever we can to prevent this from happening.
Reason 2 – Large distributors negotiate very favorable freight rates with their carriers so by offering you free freight instead of a lower price on the item, they come out ahead and you never know it.
Reason 3 – Only the very largest customers get good freight deals from distributors. The rest of us pay fuel service charges, freight from non-primary warehouses, drop ship freight, freight on "bulk" items, blue ice charges, overnight shipping charges, handling charges, and the list goes on. This is very similar to how the airlines make their profit today.
Reason 4 – Freight is a huge profit center for distributors. Most people assume that if the freight charge is near the UPS or FedX published rate, you are getting a "fair" deal. Distributors do the same thing that Lisa has done for LPS; they negotiate a great freight rate and then earn a profit on it.
One way or the other, you are paying for the freight. There is no free lunch and only the very largest customers (think many millions of dollars in annual spend) can negotiate freight terms that actually decrease the distributor's overall profit margin.
What can be done to lower transportation costs?
Monitor transportation costs as carefully as you do the price of the item. This is especially true if you feel you have been granted "partially free freight" as described above. You tend to let your guard down and only realize after it is too late (i.e., you got the product) that your wallet was just drained.
At LPS, we watch transportation costs like a hawk on every transaction. It is our job to make sure that there are no "surprises."
In most cases, it is better to have the freight billed to a 3rd party account rather than on a pre-pay and add basis. This takes away the vendors excuse to tack on fuel service charges or a profit margin.
If your company does a lot of shipping, then you may already have a preferred carrier. If you are like many small labs, you just don't have the clout nor the reason to negotiate with freight carriers.
Thanks to Lisa's excellent contract negotiation skills, you can now utilize the LPS FedEx contract whenever and wherever it will save you money!
When would you NOT want to use the LPS shipping contracts?
If you prefer, you can request that LPS use your own FedEx or UPS contract. There are additional benefits for doing this. Some of the vendors we use truly DO have free freight. Amazon Prime is one notable example and yes, we do shop on Amazon.com on your behalf when we are looking for the best deals. Simply put, if you elect this option, if we get free shipping, so will you!
UPS and FedEx have both implemented a 3rd party billing fee at the beginning of 2016. This fee applies to people who ship on another person's account. It is a small fee (typically $3.15 per shipment) and this fee is not applied universally. If we incurr this fee, we must pass this along to our clients.
Some vendors heavily discount freight. Hardy Diagnostics is one vendor who ships temperature sensitive products every day from California to your lab at prices that are a fraction of what a UPS ground shipment would cost! In cases like this, the best decision is to pay their freight costs.
Freight is a major part of the expense of running a lab. While we are all very careful about monitoring the item cost we are not nearly as good about monitoring freight costs and are often lulled into a sense of security by distributors "free freight" terms.
LPS monitors freight on your behalf every day, every transaction. Just another way we save you money.