Comments on: Transportation Procurement is ‘Hot’ Right Now http://logisticsviewpoints.com/2009/05/21/transportation-procurement-is-hot-right-now/ Providing logistics professionals with clear and concise analyses of Logistics Trends, Technologies, and Services Sat, 06 Mar 2010 10:51:16 -0500 http://wordpress.org/?v=2.9.2 hourly 1 By: Adrian Gonzalez http://logisticsviewpoints.com/2009/05/21/transportation-procurement-is-hot-right-now/comment-page-1/#comment-31 Adrian Gonzalez Tue, 26 May 2009 19:41:40 +0000 http://logisticsviewpoints.com/?p=1039#comment-31 Logisticsexpert, Thank you for the great viewpoint. I posted a reponse via another posting: http://logisticsviewpoints.com/2009/05/26/transportation-procurement-another-viewpoint/ Logisticsexpert,

Thank you for the great viewpoint. I posted a reponse via another posting: http://logisticsviewpoints.com/2009/05/26/transportation-procurement-another-viewpoint/

]]> By: Logisticsexpert http://logisticsviewpoints.com/2009/05/21/transportation-procurement-is-hot-right-now/comment-page-1/#comment-29 Logisticsexpert Fri, 22 May 2009 15:14:52 +0000 http://logisticsviewpoints.com/?p=1039#comment-29 I have debated this topic with many providers over the last year. My question comes down to this: “What evidence do I have that no matter what I do now, when the “worm turns” I will not be forced to pay market rates anyway”? The implied scenario by many is that if I do not “take advantage” of the market today, somehow the carriers will “take care of me” in some special way when the carriers have an advantage. I have no evidence of that. I believe when (if) the carriers obtain pricing power they will use it on everyone equally. No one will be spared. There is no way a company will accept a lower profit margin than what they could otherwise get just because I “took care of them” during the bad times. Ask them to put it in writing and see how far you get. Further, I have been in this industry for over 20 years. During that time span, the carriers have had massive pricing power for 4 of them. The other 16 were defined by excess capacity and “commodity” type pricing. Why do we think that those 4 special years will become the rule at some point. Not saying it will not happen again but I am saying those years seem to be the rare exception and not the rule. A key problem / characteristic of trucking is it has incredibly low barrier to entry. Therefore, as soon as profits become above average capacity swoops in and fixes the problem. Now, I am not a big fan of predatory pricing (i.e. taking advantage of a bad situation) but how do I ensure I am not at a COMPETITIVE DISADVANTAGE to my competitors. What if I take the “take care of them” approach and my competitor does not. If this were to occur, it could add $5 or more as a cost per unit into my product vs. theirs. I will lose in the market place. That type of price differential in a part of the COGS will cause me to lose business long before the “worm turns”. For all these reasons, I cannot figure out this approach to purchasing transportation services. As much as we hate to say it, transportation services are “commodity like”. They are not full commodities, and certainly the closer you get to your customer (i.e. Last MIle) they are NOT a commodity, but they are commodity like. Thoughts?? I have debated this topic with many providers over the last year. My question comes down to this: “What evidence do I have that no matter what I do now, when the “worm turns” I will not be forced to pay market rates anyway”?

The implied scenario by many is that if I do not “take advantage” of the market today, somehow the carriers will “take care of me” in some special way when the carriers have an advantage. I have no evidence of that. I believe when (if) the carriers obtain pricing power they will use it on everyone equally. No one will be spared. There is no way a company will accept a lower profit margin than what they could otherwise get just because I “took care of them” during the bad times. Ask them to put it in writing and see how far you get.

Further, I have been in this industry for over 20 years. During that time span, the carriers have had massive pricing power for 4 of them. The other 16 were defined by excess capacity and “commodity” type pricing. Why do we think that those 4 special years will become the rule at some point. Not saying it will not happen again but I am saying those years seem to be the rare exception and not the rule.

A key problem / characteristic of trucking is it has incredibly low barrier to entry. Therefore, as soon as profits become above average capacity swoops in and fixes the problem.

Now, I am not a big fan of predatory pricing (i.e. taking advantage of a bad situation) but how do I ensure I am not at a COMPETITIVE DISADVANTAGE to my competitors. What if I take the “take care of them” approach and my competitor does not. If this were to occur, it could add $5 or more as a cost per unit into my product vs. theirs. I will lose in the market place. That type of price differential in a part of the COGS will cause me to lose business long before the “worm turns”.

For all these reasons, I cannot figure out this approach to purchasing transportation services. As much as we hate to say it, transportation services are “commodity like”. They are not full commodities, and certainly the closer you get to your customer (i.e. Last MIle) they are NOT a commodity, but they are commodity like.

Thoughts??

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