In logistics, timing is everything. Amid the current times, we are all looking for ways to avoid unnecessary costs. That being said, one of the easiest ways to cut costs is timing with shipments. When given the most time to look for carriers to handle a load, the more likely a shipper is to experience significant cost savings.
Lead Time is the amount of time from when the Purchase Order has been received to the in-hands date. How you handle Lead Time can make or break the cost of your shipments. When alerted as soon as possible, the broker can allocate more time to shopping for the right shipping rate, rather than having to take the first price offered out of the need to book a carrier as quickly as possible.
Cycle Time is the amount of time from when production begins on a product until it is finished. Knowing the manufacturing time of a product is imperative to effective load scheduling and cost-efficiency.
Tender Lead Time is the amount of time from when the load is tendered to the actual ship date. This step can land anywhere in the logistics process from the receipt of the PO to the end of manufacturing, which all depends on the shipper and how quickly they make their loads available for tendering.
For example, in Figure 1 below, when a load is shopped around closer to the PO receipt date, it gives the broker more time to find the right fit for that load, whether that be price, carrier experience, and/or capacity. When the load is shopped around closer to the end of the manufacturing date, the broker is forced to choose from what is left of the available carriers, resulting in higher cost due to lower carrier availability.
Impact of Tender Lead Times and Shipment Performance
In the following study, we take a look at a few shippers and their logistics processes and how Tender Lead Time is a major player in the final cost of their shipments. Longer Tender Lead Time is necessary to reduce the average cost on loads, and mere hours are the difference between shipments resulting in inflated costs or under-budget loads. Figure 2 below shows cost variables between the amount of Lead Time given from Tender Date.
We took a look at a handful of similar shippers and dove into some prominent metrics: OTP & OTD, Average Tender Lead Time, Average Cycle Time, Average Haul Length, and Average Freight Spend. The graph below breaks down their overall performance and cost, along with the correlation that Tender Lead Time and Cycle Time have on their logistics processes.
Let’s start by comparing Shipper 1 and Shipper 2. Shipper 1 has the longest average hauls of the 3 shippers and also has the lowest cost per mile. Their typical Cycle Time is slightly longer than Shipper 2 by roughly 10 hours, but their average Tender Lead Time is about 24 hours longer, and Shipper 1 also pays about 50 cents less per mile. This shows that having even less than a day longer to source carriers can make an impact on cutting unnecessary costs on loads.
Moving onto performance metrics, these shippers have similar Cycle and Tender Lead Times, but have very different OTP and OTD rates. Shipper 1 experiences better performing shipments from the get-go, obtaining an OTP of nearly 96 percent. On the flipside, Shipper 2 has around 48 hours to source carriers, resulting in a lower pickup rate at around 85 percent. Now, once the shipments have been picked up, their OTD performances are very good at over 98 and 95 percent respectively. It’s possible that the delayed pickup times at Shipper 2 result in the slightly lower OTD rate, which shows the cascading effect of having less Tender Lead Time to work with.
Enter Shipper 3. Shipper 3 has the lowest freight spend but also processes the shortest haul length. Their cost per mile is right in the middle of Shippers 1 and 2 at $2.71, and their performance metrics are excellent at over a 99 percent OTP and nearly 98 percent OTD rates. While their shipments are doing well by most standards, there is still some room for improvement.
Shipper 3 has the luxury of nearly double the Cycle Time of both Shippers 1 and 2 at over 8 days. Although their Cycle Time is longer, Shipper 3’s Tender Lead Time is only around 24 hours longer than Shippers 1 and 2. While their load performance is doing well, they could see a significant decrease in their Freight Spend if they were able to add even 8 hours to their Tender Lead Time, pushing it to a little over 4 total days to tender their average load.
To conclude, in Figure 4 below, you can see the breakdown of load tendering Lead Time on the average shipment.
Around 70% of these shipments had a Tender Lead Time fewer than 48 hours, with more than half of those yielding less than a day. As previously shown in Figure 2 above, that lack of time to search for a carrier tacks on a whopping $20+ per shipment. While in the grand scheme of things $20 is not budget-breaking, a shipper hauling 100 loads per month at that price is sinking over $2,000 in extra costs per month and roughly $25,000 annually into easily avoidable premiums.
Bignell, Andrew (2013). Characteristics of Spot-market Rate Indexes for Truckload Transportation. Pg 52. [Unpublished master’s thesis]. Massachusetts Institute of Technology.