In today’s economy, I started thinking about how many times people spend money without knowing what the actual charge is for whatever they are buying?  I know for certain that utilities fall in this category.  One doesn’t sit around and think about how much water is being consumed every time the toilet flushes and what that costs.  Nor does one turn on the ceiling fan and think about the watts flowing through and the cost of each.  Utilities are necessities and everyone probably just does their best job to conserve and minimize costs.

For most of the other things and services we purchase we always want to know what something costs before spending.  However, I have found that businesses don’t always do that.  I remember back in the day when I travelled a great deal, I would always rent a car from the most convenient car rental company, and surely the one who gave me points.  However, I did check airline costs and hotel costs as I felt those varied much more than airlines or hotels.  I had a budget to abide by and didn’t want the boss on me about exceeding the budget. 

I think there are times when business people book the most convenient flights, the hotels with the greatest rewards and the car rental companies that can minimize the rental hassle.  Businesses also ship their products without knowing what they are spending.  Sometimes, it is out of convenience or necessity (It absolutely has to be there….).  However, most of the time, it’s because there isn’t any way to actually figure out the costs in advance.  Small package carriers like UPS and FedEx use to be simple but they made it complicated, perhaps to increase profits.  If you have any volume at all, you have discounts to deal with, pricing tiers, incentives, surcharges and ever-changing fuel costs.  They compound that by offering 7 different service levels too!

Less-than-truckload (LTL) carriers offer discounts off their tariffs and due to the complexity of the underlying tariffs, it ‘s not possible to know the exact cost in advance of shipping.  You might know that you have a 75% discount, but not sure of the underlying base rate, the fuel surcharge for the week, the other surcharges that might apply, whether it’s a direct or inter-line point, or whether the shipment hits an absolute minimum charge.  International shipping is really complex with all the components involved (pick-up, transfers, linehaul, entry and delivery fees).  Throw on top the documentation, security and customs fees and it just doesn’t compute, in advance anyway. 

Air and expedited, rail and intermodal…they are all the same.  The Postal Service is the only one who has a service that can be calculated, but there is a size limitation to their flat rate shipping.

So what’s the answer?  Many companies use Third Party Logistics providers and contract rates up front and thus placing some of the risk of the unknown rates on the 3PL.  The most astute use a transportation rate engine to help them deciper the options and choose the right mode of transport and right carrier based on cost and total value before they route their shipments.  The next time you are seeking to fly somewhere or book a hotel, and you are on Orbitz, think about why you don’t use a rate engine for your company’s shipping.  In today’s economy, every penny counts, and companies using intuition on carrier selection are flusing money away.