Panapacific’s electronic product distribution business was moving so fast, there was a lack of a good understanding of how to balance freight costs and customer service. Furthermore, due to the difficulties of preparing RFPs, the company had not competed its freight business for several years. The company felt that re-competing the freight business might enable it to re-allocate capital to other parts of the business, where it would have the most impact on customer satisfaction. “I feel like the proverbial frog being boiled in a pot,” said Panapacific’s CFO John Tingleff, “My carriers turn down the heat just before I get boiled. For example, I got hit by 2.5x fuel surcharge when fuel prices are at the lowest in years.”
The figure below illustrates how freight is a key cost driver for Electrical Product Distributors. According to Kreischer & Miller, an auditor for the Electrical Products Distribution Industry, typical freight costs are 3% of gross revenues for inbound and 7% for outbound. The graphic below provides an overview of a Distributor ecosystem.