A Way To Lower Shipping Costs

Nation's Business, Dec, 1998 by Ken Cottrill

"Transportation costs are a major competitive hurdle for many Midwest exporters," says Winget. Freight costs are generally lower for U.S. exporters based in coastal regions, he says, making these enterprises more competitive, particularly for overseas buyers.

For instance, many foreign buyers place their cargo-consolidation centers near U.S. ports, explains Winget. For Midwestern exporters, moving cargo to these centers is an added cost.

One limitation of shippers associations, Winget notes, is that they can't deliver economies of scale until the customer base reaches a critical mass.

A cooperative "has to start in a limited number of trade lanes where it can negotiate rates for its members," he says. That means that it can take some time before a cooperative can deliver the lower costs it promises.

Also, in specialized trades, shippers may be loath to switch to a freight-service provider with which they are unfamiliar. In the food business, for example, "some shippers have heard horror stories and find it difficult to switch," says Winget.

Clearly, companies should evaluate cooperatives as carefully as they would other service providers. But the cost savings that shippers cooperatives offer small and medium-sized firms have taken on new importance given the continuing consolidation of the freight-hauling industry.