A $50 million service center spends roughly $2.5 million per year on freight, split between inbound (mill to warehouse) and outbound (warehouse to customer). A 15% reduction in freight costs drops $375,000 to the bottom line. That is the equivalent of adding $3.75 million in new revenue at a 10% gross margin. Freight optimization is one of the highest-ROI initiatives any service center can pursue, and most are not pursuing it at all.
Inbound Freight Optimization
Inbound freight from mills represents 60% to 70% of total freight cost for most service centers. The key lever is truckload optimization. A flatbed truck can legally haul 48,000 pounds in most states. A coil shipment of 42,000 pounds is paying the same base freight rate as 48,000 pounds. That 6,000 pounds of unused capacity is wasted money.
Work with your mills to consolidate orders that fill trucks to legal maximum weight. If your order for 42,000 pounds of HRC is going on a truck, add 6,000 pounds of another product from the same mill to the same truck. The incremental freight cost for those additional 6,000 pounds is zero because you are already paying for the truck.
FOB terms matter significantly. Buying delivered (freight included in the material price) is simpler but typically more expensive because the mill adds a markup on freight. Buying FOB mill and arranging your own freight lets you negotiate directly with carriers, consolidate loads, and choose the most efficient routing. For service centers buying 5,000+ tons per month from a single mill, managing your own inbound freight typically saves $8 to $15 per ton.
Outbound Freight Optimization
Outbound delivery costs depend on three factors: distance, weight, and number of stops. Reducing any of these reduces cost. Zone-based delivery scheduling (delivering to specific geographic areas on specific days) reduces distance by clustering stops. Minimum weight requirements ensure that each delivery covers its freight cost. And route optimization (sequencing stops to minimize backtracking and empty miles) reduces the total miles driven per delivery.
Track your cost per delivery and cost per ton delivered by route, by driver, and by customer. This data reveals which routes are efficient and which are losing money. A delivery to a customer 80 miles away with a 2,000-pound order costs $150 in fuel and driver time. The same truck delivering 20,000 pounds to a customer 20 miles away costs $40. If you charge both customers the same $100 delivery fee, the first delivery loses money and the second is profitable.
Carrier Negotiation
If you use common carriers for any portion of your deliveries, negotiate rates annually based on your actual volume, not the carrier's published tariff. Get quotes from at least three carriers for your primary lanes. Carriers price lanes differently based on their network density, so the cheapest carrier for a lane to Dallas may be the most expensive for a lane to Atlanta.
Consider dedicated contract carriage if you have consistent daily volume on specific routes. A dedicated carrier provides a truck and driver exclusively for your routes at a fixed daily or weekly rate. For service centers making 3 or more deliveries per day on the same general routes, dedicated carriage is usually cheaper than spot-market or common carrier rates and provides more reliable service.
Freight Recovery
Review how much of your outbound freight cost you pass through to customers. Many service centers recover only 50% to 60% of their actual delivery costs. The gap is absorbed as a cost of doing business. Closing that gap does not require raising delivery charges dramatically. It requires accurate cost allocation: know what each delivery actually costs and price accordingly. Small orders to distant locations should pay more for delivery. Large orders to nearby customers should pay less. Uniform delivery charges subsidize the expensive deliveries at the expense of the cheap ones.