With Margins Tight, Logistics and Transportation Companies Control Costs by Outsourcing Back-Office Functions

October 25, 2017 John Alarcon

The business of shipping freight continues to be highly competitive, according to the latest numbers from the American Trucking Associations. This past year, carriers large and small cut rates to generate business, and that tactic contributed to four percent drop in industry revenue: $676.2 billion in 2016, compared to $704.3 billion in 2015.

Trucking firms, which move 71 percent of the country’s freight (10.42 billion tons), operate on some of the tightest profit margins in the transportation industry—an average operating margin of less than 5 percent, compared to 20 percent in the rail industry, according to the ATA.

Controlling Costs

With such slim margins, it’s no surprise that cost control is a primary focus in the logistics and transportation industry. One particularly effective strategy trucking and other freight transportation companies use to cut business costs is outsourcing non-core functions to service providers such as DATAMARK.

The Outsourcing Decision

What activities make good candidates for outsourcing? The rule of thumb to follow is: “Do what you do best and outsource the rest.” For freight carriers, this means focusing on the core business of shipping freight to customers. Back-office functions such as the daily processing of thousands of bills of lading, air waybills, customs forms and other transportation documents can be outsourced to a specialty provider, which can do the work more efficiently and at a lower cost.

In addition to high-volume document processing, a number of other functions related to the logistics and transportation industry can be turned over to a third party. These include freight invoice payment and auditing services, which can reduce costs by identifying and resolving inaccurate charges or duplicate payments. A service provider can also handle other back-office functions related to invoices, such as collections and invoice factoring.

Finance and accounting (F&A) tasks such as cash application and account reconciliations—no matter how complex—can also be outsourced. This helps eliminate the time and headaches devoted to these tasks, allowing freight carriers to focus on customer service.

Outsourcing Customer Service

Another excellent candidate for outsourcing is the customer service contact center. Trucking and other logistics and transportation providers often find that as business grows, so does the need for trained customer service agents. But opening a contact center is time consuming and costly, given the need for facilities, communications equipment and networks, and the hiring and training of agents. A contact center services provider already has the infrastructure in place and can quickly hire agents for the task at hand. Additionally, a contact center provider can ramp up and ramp down hiring as needed based on seasonal or cyclical business activities.

Need help deciding what activities to outsource and which to keep in-house? Check out DATAMARK’s outsourcing decision matrix.

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