Optimizing Freight Procurement: Strategy for Cost Control at HRE

Posted on Jan 22, 2026 in Accounting and Finance

Executive Summary: Freight Cost Control Strategy

Humber River Electronics (HRE) spends approximately $170,000 annually on outbound freight services, utilizing four trucking suppliers: FedEx, JW Express, Martins Forwarding, and Orford Freight. With anticipated price increases of 3% to 5% due to rising fuel and wage costs, HRE must assess its freight strategy to control expenses while maintaining service quality.

The analysis reveals that Martins Forwarding accounts for the largest share of freight costs, while other providers like Orford and FedEx have limited engagement. Freight services were previously acquired based on informal quotes, lacking a structured procurement strategy. To address these concerns, Anna Griffin must evaluate alternative supplier strategies, including consolidating suppliers, renegotiating contracts, or implementing a competitive bidding process. The recommended course of action is a mix of supplier consolidation and competitive tendering to improve cost efficiency and service reliability.

Issue Identification

Short-Term Issues

  1. Lack of Formal Procurement Process: Freight services are acquired through informal quotes, leading to inconsistent pricing and potential cost inefficiencies.
  2. Rising Freight Costs: Suppliers anticipate price increases of 3%–5%, which could significantly impact HRE’s bottom line.
  3. Fragmented Supplier Base: HRE works with four different freight providers, which may reduce volume-based negotiation power.

Long-Term Issues

  1. Supply Chain Efficiency: Without a structured approach, inefficiencies in freight selection may lead to higher costs and operational disruptions.
  2. Service Quality and Reliability: While current providers perform well in delivery, an uncontrolled procurement process risks service inconsistency.
  3. Scalability for Future Growth: As HRE expands with the growing renewable energy sector, an optimized logistics strategy will be crucial for long-term competitiveness.

Environmental Analysis

Qualitative Analysis

  • Customer Freight Preferences: Some customers require FOB Origin (freight collect), while others prefer FOB Destination (freight prepaid). Managing these terms effectively is crucial.
  • Service Considerations: Beyond cost, HRE needs reliable delivery, customs clearance for U.S. shipments, shipment tracking, and low damage rates.

Supplier Strengths & Weaknesses

  • Martins Forwarding: Dominates HRE’s freight spend but is a smaller, local company.
  • JW Express: A major Canadian transporter offering consistent LTL and 1-skid services.
  • FedEx: A global player but with limited use by HRE.
  • Orford Freight: A large logistics company but with minimal engagement.

Quantitative Analysis

Annual Freight Spend Breakdown (Exhibit 3)

  • Martins Forwarding: $124,800 (72.7%)
  • JW Express: $31,845 (18.5%)
  • Orford Freight: $12,000 (7.0%)
  • FedEx: $3,000 (1.7%)
  • Total: $171,645

Shipping Costs by Distance and Load Type (Exhibits 1 & 2)

  • Martins is the primary carrier for FTL (Full Truckload) loads across all distances.
  • JW Express is used for LTL (Less-than-Truckload) and small shipments in both Canada and the U.S.
  • Orford is only used for select FTL shipments at high costs ($4,000/load).

Alternatives for Freight Procurement

Alternative 1: Competitive Bidding Process

Pros:

  • Encourages cost reductions by leveraging competition.
  • Ensures structured selection based on service quality and reliability.

Cons:

  • Time-consuming and requires administrative effort.
  • Risk of service disruption if switching suppliers.

Alternative 2: Supplier Consolidation

Pros:

  • Increases negotiation leverage with fewer suppliers.
  • Simplifies logistics management and billing.
  • Potential for volume discounts.

Cons:

  • Reduces flexibility if one provider underperforms.
  • May limit options for specialized shipments.

Alternative 3: Renegotiate Contracts with Existing Suppliers

Pros:

  • Maintains existing relationships, reducing transition risks.
  • Allows for negotiation of fixed-term pricing to mitigate future cost increases.

Cons:

  • Limited leverage without competition.
  • May not result in significant cost savings.

Recommendation: Consolidation and Competitive Tendering

The best course of action is a combination of Alternative 1 (Competitive Bidding) and Alternative 2 (Supplier Consolidation). HRE should initiate a competitive tendering process to evaluate new and existing suppliers based on cost, service quality, and technology capabilities. Additionally, the company should reduce the number of freight providers to optimize logistics efficiency and improve cost management.

Short-Term Considerations

  • Immediate cost control through better supplier negotiations.
  • Identifying potential volume discounts by consolidating freight providers.

Long-Term Considerations

  • Establishing a structured procurement process for freight services.
  • Ensuring scalability and reliability as the company grows.

Implementation Plan

Step 1: Conduct Supplier Evaluation (Month 1–2)

  • Develop a formal Request for Proposal (RFP) with clear evaluation criteria.
  • Invite bids from current suppliers and potential new providers.

Step 2: Select and Consolidate Freight Providers (Month 3)

  • Choose 2–3 primary providers based on total cost, reliability, and service offerings.
  • Negotiate long-term contracts with volume discounts.

Step 3: Implement New Freight Strategy (Month 4–6)

  • Transition to new agreements while ensuring minimal disruptions.
  • Update internal processes for streamlined freight management.

Monitor and Control

Key Performance Indicators (KPIs)

Short-Term KPIs:

  • Cost savings achieved within the first 6 months.
  • Service reliability (on-time delivery rates above 95%).
  • Reduction in freight spend variance.

Long-Term KPIs:

  • Consistent freight cost control below industry inflation rates.
  • Customer satisfaction with shipping times and order fulfillment.
  • Performance review of selected providers annually.

Contingency Plan

  • If new contracts fail to meet performance expectations, HRE should retain backup agreements with alternative suppliers.
  • If fuel costs increase beyond projections, explore alternative shipping strategies, such as regional distribution centers or optimizing shipment consolidation.

This structured approach ensures HRE controls freight costs while maintaining reliable service, preparing for future growth in the renewable energy sector.