Rebuilding a Network After Cheap Freight: A Before/After Case Study
- Danyul Gleeson
- 5 hours ago
- 9 min read
If supply chains had a hangover, this would be the headache, dry mouth, and vague sense of regret that follows a three-year bender with “cheapest carrier wins”.
The rate cards look tidy.
The freight invoices behave themselves.
Finance even nods approvingly in meetings.
And yet customers are annoyed, planners are exhausted, and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is quietly bleeding out through a thousand tiny paper cuts.
This is what rebuilding a network after cheap freight actually looks like inside a very normal ANZ/US-style operation. Not the heroic version with a single silver bullet, but the uncomfortable, spreadsheet-heavy reality.
We’ll walk through what happened to DIFOT, total cost to serve, and EBITDA when the business finally broke up with the lowest line-haul rate and stopped pretending it was discipline.
Rebuilding a Network After Cheap Freight: How the Trouble Starts
Rebuilding a network after cheap freight almost always begins with a lie that sounds sensible at the time:
“We’re just being disciplined on cost.”
On paper, this distributor looked textbook. Annual RFQs. A clean lane matrix. Slides proudly showing transport cost sitting at a respectable percentage of revenue.
Each tender followed the same ritual:
Sort carriers by rate per pallet or carton
Argue politely about fuel and surcharges
Award lanes to whoever was cheapest with a half-convincing coverage map
What never made it onto the slides was everything happening off-screen.
DIFOT was stuck around 88–89% on good months and dipped into the low 80s whenever promotions met bad weather or carrier outages.
Poor DIFOT is widely recognised as a direct driver of penalties, lost sales, and extra handling in modern retail and ecommerce networks.
“Where is my order?” calls were up more than 40% year on year.
The contact centre added another head just to stop hold times blowing out.
Anyone running ecommerce logistics will recognise that pattern immediately.
Planners were playing whack-a-mole with same-day and overnight rescue freight. Yesterday’s “savings” quietly turned into tonight’s expedited bill.
On the P&L, freight looked stable. In reality, total cost to serve was ballooning once reships, credits, promotional write-offs, extra labour, and customer churn were layered in. This is the hidden tax analysts have warned about for years when supply chains chase unit cost and ignore service volatility.
Rebuilding a network after cheap freight only became unavoidable when one slide in a quarterly review made denial impossible. The EBITDA bridge showed “logistics-related erosion” big enough to wipe out the last two years of rate-card wins.
Before: Inside a “Cheapest Carrier Wins” Network
Before rebuilding a network after cheap freight, the operating logic was simple:
Lowest rate wins.
Exceptions are the cost of doing business.
Customers will cope.
Reality had other plans.
Ecommerce metro lanes
Promised 1–2 day delivery but delivered it only in the low-80s percent of the time. In markets where mid-90s on-time performance is now table stakes,
that gap is the difference between “reliable partner” and “we’re trialling someone else”.
Regional and rural lanes
Sold with metro-style promises and supported by thin capacity and multiple handoffs. Industry benchmarks consistently show rural DIFOT tracking 10–15 points behind metro even in well-run networks. Promising the same speed was an over-service gamble with terrible odds.
B2B replenishment
Contracted with DIFOT targets but procured on rate alone. Every missed window triggered either production risk or a credit note. Over time, those credits quietly ate the margin those sharp rates were supposed to protect.
When finance finally stitched the whole picture together, the conclusion was blunt.
Logistics-related noise - expedited freight, penalties, promo misses, write-offs - was eroding roughly 2–3 percentage points of EBITDA margin.
That lines up neatly with research from firms like McKinsey and BCG, which repeatedly warn that 20–30% of EBIT can be put at risk when supply chains optimise for cost alone and under-invest in resilience and service.
At that point, rebuilding a network after cheap freight stopped being a logistics project and became a board-level conversation about survival.
The Pivot: Redefining “Cheap” When Rebuilding a Network After Cheap Freight
The first move in rebuilding a network after cheap freight was almost offensively simple.
They stopped pretending “cheapest rate” and “lowest cost” were the same thing.
Procurement, finance, and operations locked themselves in a room and rewrote the rules.
From cost per movement to cost to serve
Carriers stopped being ranked on dollars per kilometre or per pallet. Instead, the team modelled total cost to serve by customer and lane: transport, reships, claims, credits, extra handling, and customer service workload. End-to-end cost became the unit of truth, not a single line on the invoice.
From rate-only to value-based procurement
Carriers were scored on historic DIFOT by lane and product type, claims rates, data quality, peak-season performance, and willingness to collaborate. Price still mattered. It just stopped being the only thing that mattered.
From “savings” to protected EBITDA
The KPI shifted from “how much did we cut off the rate card?” to “how much EBITDA did we protect or unlock?”. Research into cost and resilience shows this framing is what separates sustainable margin improvement from short-lived wins.
The new tender rule was unambiguous:
Lowest total cost to serve wins.
Not lowest line-haul rate.
Rebuilding a network after cheap freight meant procurement stopped shopping exclusively in the clearance aisle.
Segmentation: Rebuilding a Network After Cheap Freight by Treating Lanes Like Adults
The second step in rebuilding a network after cheap freight was admitting that not all freight deserves the same rules.
One-size-fits-all service philosophies are comforting. They are also expensive.
The network was segmented properly.
Ecommerce, metro, high-value customers
Service posture: Fast & Good.Carriers were chosen for DIFOT, tracking, and consistent two-day performance. Slightly higher freight cost made sense once repeat purchase rates and basket sizes were factored in.
Ecommerce, regional and rural
Service posture: Good & Cheap.ETAs were reset to match reality. Consolidation replaced fantasy promises. Two-day delivery stopped being sold where the physics of the network could not support it.
B2B planned replenishment
Service posture: Good & Cheap.Scheduled linehaul and predictable windows reduced firefighting. In most B2B supply chains, reliability beats speed every time.
B2B production and penalty risk
Service posture: Fast & Good.Premium services were reserved for line-down risk, safety-critical freight, and contracts with teeth. Compared to lost production hours or penalties, the premium was trivial.
Rebuilding a network after cheap freight meant some lanes were permanently banned from being “Fast & Cheap”, and others were relieved of the burden of being “Fast & Good” when they did not need to be.
After: What Rebuilding a Network After Cheap Freight Actually Delivered
Twelve months after rebuilding a network after cheap freight, the dashboard looked like it belonged to a calmer, more competent organisation.
DIFOT performance
Network-wide DIFOT lifted from the high-80s to roughly 96%. Metro ecommerce lanes sat consistently in the 97–98% range. B2B replenishment hit contractual targets without drama.
Total cost to serve
Headline rates increased by 6–8% on some lanes. Once reships, service credits, write-offs, and emergency freight were counted properly, total cost to serve per order dropped by around 10–12%. Paying more per movement ended up costing less overall.
EBITDA impact
Logistics stopped eroding 2–3 margin points and started contributing 1–1.5 points back. Promo misses fell. High-value customers stayed. Exception-driven waste shrank.
The softer wins mattered too.
WISMO volumes dropped because deliveries started doing what they promised.
Planners stopped living on adrenaline.
Sales used logistics performance as a selling point instead of an apology.
Rebuilding a network after cheap freight did not mean abandoning cost discipline.
It meant finally measuring the right costs.
Rebuilding a Network After Cheap Freight: The Five-Step Rulebook
For any ANZ or US-style operator feeling uncomfortably seen by this story, rebuilding a network after cheap freight usually follows the same five moves.
1. Name the real tax
Quantify how missed DIFOT, promo failures, write-offs, reships, and penalties hit revenue and margin. Treat them as freight cost, not random noise.
2. Redefine “cheapest”
Move to value-based procurement. Score carriers on DIFOT, claims, flexibility, data quality, and partnership. Rate still matters. It just stops being the whole story.
3. Segment like you mean it
Decide explicitly where Fast & Good is non-negotiable and where Good & Cheap is smarter. Anchor promises to real metro vs rural and ecommerce vs B2B benchmarks.
4. Rebid with new rules
Run tenders where lowest total cost to serve wins. Ask carriers to prove performance with data, not adjectives.
5. Lock the gains in
Bake DIFOT, cost to serve, and margin impact into dashboards, governance, and incentives. Cheap freight will always try to sneak back in. Metrics keep it in its lane.
FAQs: Rebuilding a Network After Cheap Freight
What does rebuilding a network after cheap freight actually mean?
Rebuilding a network after cheap freight means redesigning your carrier mix, service promises, and governance after years of prioritising the lowest line-haul rate. It focuses on restoring DIFOT, reducing hidden cost to serve, and protecting margin once the downstream damage of cheap freight becomes impossible to ignore.
Why does cheap freight usually increase total cost to serve?
Cheap freight lowers the invoice but increases everything around it. Missed deliveries, reships, service credits, expedited “rescue” freight, extra labour, and higher WISMO volumes all compound. Most businesses discover that while rates look cheaper, total cost to serve quietly climbs 10–20% once exceptions are counted properly.
How does cheap freight impact DIFOT performance?
Networks optimised for cheapest carriers typically sacrifice capacity, reliability, and recovery capability. This pushes DIFOT into the mid-to-high 80s, with sharper drops during peaks or disruptions. Poor DIFOT directly drives penalties, lost sales, customer churn, and internal firefighting.
What DIFOT benchmark should mature logistics networks aim for?
For most mature networks:
Metro ecommerce lanes should consistently sit in the 95–98% range
B2B replenishment should reliably meet contractual DIFOT targets
Regional and rural lanes should be benchmarked realistically, not sold at metro standards
Anything materially below this usually signals structural issues, not “bad luck”.
How do you calculate total cost to serve in logistics?
Total cost to serve includes:
Transport rates
Reships and redeliveries
Claims, damages, and write-offs
Service credits and penalties
Extra warehouse and planning labour
Customer service and WISMO handling
If these costs are not attributed back to freight decisions, cheap carriers will always look better than they really are.
Why doesn’t rate-only procurement work in modern supply chains?
Rate-only procurement ignores volatility. It assumes perfect conditions and zero exceptions, which do not exist in real networks. Value-based procurement that scores carriers on DIFOT, claims, data quality, flexibility, and peak performance consistently delivers lower total cost and higher margin protection over time.
Should every lane be optimised for fast delivery?
No. Treating all lanes as “Fast & Good” is one of the fastest ways to overspend. High-value ecommerce and production-risk freight deserve speed and reliability. Planned B2B and rural lanes usually perform better with honest ETAs, consolidation, and stability over raw speed.
How long does it take to see results after rebuilding a freight network?
Most businesses see early improvements in 3–6 months as DIFOT stabilises and emergency freight drops. Meaningful EBITDA impact typically shows within 9–12 months once reships, credits, and customer churn reduce and planning returns to normal operations.
Is rebuilding a network after cheap freight just paying more for transport?
No. Some headline rates may increase, but total cost to serve almost always decreases. The goal is not expensive freight - it’s predictable, boring, reliable freight that stops creating downstream waste and margin erosion.
What’s the biggest mistake companies make when trying to fix cheap freight?
They rebid with the same rules. If tenders still reward the lowest rate instead of the lowest total cost to serve, the network will slowly drift back to the same problems, just with new logos on the trucks.
Rebuilding a network after cheap freight is not penance for past RFQs. It is a line in the sand.
Logistics is part of the product.
Part of the brand.
Part of the margin story.
It’s about finally admitting that the spreadsheet only ever showed you the entry price, not the exit cost.
Because in the real world, cheap freight doesn’t disappear.It reappears as WISMO tickets, rescue runs, missed promos, burned planners, awkward customer calls, and EBITDA that quietly wanders off without saying goodbye.
At some point, every growing operation hits the same fork in the road:
Keep optimising for the cheapest line on the tender.Or design a network that actually behaves the way the business is sold.
That’s where Transport Works shows up.
Not to chase rates.
Not to polish RFQs.
But to rebuild networks that deliver when things get messy, not just when conditions are perfect.
Less noise.
Fewer surprises.
Margins that stop leaking through “exceptions”.
Transport Works. Because your supply chain won’t fix itself.
Insights from Danyul Gleeson, Founder & Logistics Chaos Tamer-in-Chief at Transport Works
Danyul has been in the trenches - warehouses where pick paths were sketched on pizza boxes and boardrooms where the “supply chain strategy” was a shrug. He built Transport Works to flip that script: a 4PL that turns broken systems into competitive advantage. His mission? Always Delivering - without the chaos.
Sources and References
McKinsey & Company Multiple supply chain and operations studies highlighting that poor service reliability and disruption exposure can put 20–30% of EBIT at risk, particularly in cost-optimised, low-resilience networks.Key themes: cost vs resilience trade-offs, hidden operational drag, service volatility.
Boston Consulting Group Research on supply chain resilience, cost transformation, and margin protection showing that rate-driven cost cutting often increases total cost to serve once disruptions, expediting, and service failures are included.
Gartner Supply chain leadership research consistently emphasising end-to-end cost-to-serve models, service-level segmentation, and DIFOT as leading indicators of customer retention and margin health rather than lagging freight cost metrics.
Council of Supply Chain Management Professionals (CSCMP) Industry benchmarks and frameworks linking on-time, in-full performance to inventory efficiency, working capital outcomes, and customer satisfaction across B2B and ecommerce supply chains.
National Retail Federation (NRF) Retail and ecommerce research showing that missed delivery promises drive higher customer service costs, lower repeat purchase intent, and increased churn, particularly in omnichannel environments.
Deloitte Logistics and operations insights highlighting how exception management, expediting, and rework costs quietly erode margins when networks are optimised for unit cost rather than reliability.
PwC Studies on operational risk and performance management showing that service instability increases internal labour cost, planning complexity, and governance overhead, even when transport rates appear competitive.
MIT Center for Transportation & Logistics Academic-backed research supporting segmented service strategies and warning against uniform speed promises across metro, regional, rural, B2B, and ecommerce lanes.
APQC Benchmark data on order fulfilment, DIFOT, and cost-to-serve variability, reinforcing that high-performing organisations track service failure costs as part of logistics spend, not as exceptions.
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