For steel service centers, freight is no longer a line item—it’s a margin killer. In recent quarters, procurement managers have watched freight surcharges climb across both inbound mill shipments and outbound customer deliveries. If you’re not actively managing freight costs, you’re watching your margins erode ton by ton.
How Freight Became a Bigger Bite of the Steel Budget
Historically, transportation was a stable 3%–5% of total landed cost for flat-rolled and structural steel. But pandemic-era disruptions, diesel price spikes, and a chronic shortage of Class A drivers changed that. Today, freight can account for 8%–12%—or more—especially on long-haul lanes or LTL (less-than-truckload) routes.
In 2025, the situation remains challenging:
Diesel prices remain volatile, especially with new emissions regulations impacting supply chains.
Capacity remains tight due to driver retirements and limited new entrants.
Infrastructure bottlenecks at major ports and intermodal hubs continue to create congestion and delays.
And unlike steel pricing, freight costs are rarely negotiable once a shipment is in motion. They’re passed on—often with little explanation—as “surcharges” on your invoice.
Where Surcharges Are Hitting You Hardest
Inbound Mill Freight
Some mills now pass through monthly fuel escalators tied to diesel indices, on top of flat base rates. Others are shifting to FOB terms, leaving you to arrange transport. This pushes more responsibility—and cost—onto your procurement team.
Short-Haul and LTL Shipments
As customers demand tighter delivery windows and smaller orders, your team books more short-run or partial-load freight. These routes carry disproportionate costs, especially when backhauls aren’t available.
Intermodal Delays
Rail-based transport from inland mills is cheaper—until a container gets stuck in Joliet or Kansas City for six days. Demurrage, detention, and rerouting fees quietly pile up.
Emergency Expedited Freight
When mill lead times slip or internal planning falters, procurement often eats the cost of rush trucking to meet customer deadlines. One expedited shipment can wipe out margin on an entire order.
Five Strategies to Get Back in Control
1. Shift Contract Terms from FOB to Delivered Pricing
Push back against FOB mill contracts when possible. Delivered pricing helps you predict total landed cost, simplifies procurement comparisons, and allows you to hold mills accountable for freight reliability. If they insist on FOB, negotiate a transparent surcharge schedule tied to publicly available diesel or fuel indices.
2. Partner with Asset-Based Carriers for Priority Lanes
Spot freight from brokers may be fast, but it’s expensive and inconsistent. Build relationships with 2–3 asset-based carriers who specialize in steel (flatbed, coil racks, etc.). Secure dedicated lanes where possible, even if it means slightly higher base rates. In exchange, request guaranteed pickup windows and surcharge caps.
3. Improve Order Consolidation and Load Planning
Work with sales and warehouse teams to consolidate customer orders into fewer shipments. Aim to move from LTL to full truckload (FTL) where feasible. Investing in load planning software or a TMS (transportation management system) can pay back quickly by optimizing routing and reducing empty miles.
4. Include Freight Metrics in Procurement Reviews
Track freight costs per ton alongside raw material costs. If your freight per ton jumps 10% in a quarter, that’s a red flag—even if your steel price looks good. Ask mills to break out freight, fuel, and accessorial charges separately. Transparency allows you to benchmark and push back.
5. Pass Through Surcharges Transparently to Customers
It’s time to rethink your customer pricing model. If you’re absorbing every cost increase internally, you’re subsidizing volatility. Consider adding a line-item fuel surcharge, reviewed monthly or quarterly. Even partial pass-through helps protect margin—and customers are increasingly familiar with this approach.
Bonus: Create a Freight Buffer in Your Pricing Strategy
When quoting spot or contract pricing, build in a freight buffer tied to average monthly volatility. For example, if your typical outbound shipping cost is $80/ton and you’ve seen +/-15% variation over six months, pad quotes by $12–$15/ton. It’s not about overcharging—it’s about safeguarding your floor.
Case in Point: A Midwest Service Center Reacts
One steel center in Ohio reviewed its 2024 freight invoices and discovered that 27% of orders under 10 tons had more than $180/ton in freight charges due to LTL booking delays. By consolidating daily shipping into three dedicated truckload runs per week and renegotiating with a regional carrier, they reduced average freight costs by 23%—saving nearly $300,000 annually.
The Role of Procurement: Proactive, Not Reactive
Too often, procurement sees freight as a downstream problem. That’s a mistake. Freight strategy starts at the time of order—not the time of delivery. By proactively aligning contract terms, carrier relationships, and load planning, you shift freight from a surprise cost to a managed variable.
Conclusion
Freight surcharges aren’t going away—but your ability to control them can improve. Procurement managers who treat freight as a strategic cost driver, not a fixed expense, will gain a competitive edge. With better contract terms, dedicated carrier partnerships, and smart consolidation, you can protect your margins, stabilize pricing, and deliver steel with confidence—even in a volatile logistics market.
