The transportation capacity crunch was the biggest topic of discussion at CSCMP‘s annual conference. Every shipper I talked to, or heard present, admitted that while they had expected rising truckload costs this year, they had underestimated, often grossly, just how much these expenses would grow. Carriers also have more choices on who they want to work with than ever. This means many shippers are having increasing problems getting their loads picked up in a timely manner. Many shippers are talking about becoming a shipper of choice to protect their service levels. But what do you have to do to become a shipper of choice? Does being a shipper of choice increase your costs? Does being a shipper of choice even matter?
When it comes to these types of questions, I start by going to the resources section of TMC. TMC is a division of C.H. Robinson that provides managed transportation and transportation management systems. Their solution is network based, and billions of dollars of transportation spend flow through their network. This means they are in a terrific position to do real research in these areas rather than just providing common sense answers that may or may not have a basis in fact. In many cases, they partner with graduate students at MIT’s Center for Transportation and Logistics to analyze the TMC data.
I downloaded ten white papers to answer my shipper of choice questions. I will provide some highlights from C.H. Robinson’s research. But if you are a shipper with transportation responsibilities, it really is worth going to the site yourself.
Here are ten key points:
- Properly balance costs and service with your internal transportation metrics – If you want good service from your carriers, your internal need to reflect corporate strategy. But shippers often have a hard time gaining organizational alignment on this, with finance being focused on costs, and sales prioritizing service. Gaining organization alignment on the transportation metrics is a critical starting point. If you care about service, transportation needs to be more than an expense center. It needs to be a strategic element of business performance.
- Benchmark your performance – In a tight truckload market, shippers might expect that they will not attain the same level of on-time performance that they have in the past. But how much degradation is reasonable? Companies need to understand how they are performing in comparison to others in their industry. Some suppliers of network-based transportation solutions, including TMC, offer this benchmarking as a natural extension of their solution. There are also outside consultants with strong capabilities in this area.
- Don’t Let Your Rates Get Stale – If your route guides have pricing that is more than 12 months old in a market where prices are going up every month, it is very like that your tenders will NOT be accepted. One key metric is tender acceptance rate. If this is trending up, your rates may be stale. Counter intuitively, when benchmarking is used, a rate on a lane that is significantly under the market average can be a sign of trouble rather than a reason to celebrate. Truckers in North America are not obligated to accept tenders despite a contractual relationship.
- Use constraint-based bids during the procurement process – The belief that giving a carrier more volume allows better service or lower prices is the biggest fallacy in the industry. The key to achieving good service at reasonable cost if to identify the carriers whose transportation network most complements the shipper’s lanes. It may be that a small carrier will perform particularly well on a particular lane because of their network. Constraint-based software enables shippers to invite more carriers to the bidding process. Constraint-based bids help managers collect capacity commitments associated with specific rates. These tools also help traffic managers to distribute the capacity more effectively across the network.
- Have Performance Management Reviews – Often companies with strategic carriers have quarterly meetings where top executives with the shipper and carrier get together to review and improve performance. It is a fact of life that shipper volumes and carrier capacity changes. These meetings help to insure shipper and carrier commitments have been kept. The metrics and performance reviewed should not just be the carriers. There should be both carrier and shipper scorecards. While not mentioned in the research, technology solutions that provide real-time visibility to shipments are hot. These solutions can help provide dwell times and other metrics that can allow carriers and shippers to employ improvement projects that help one or both parties improve on their scorecards.
- Long-term strategic relationships are not built on a tough negotiating stance – Shippers that historically have sought below market rates are penalized when the market shifts to favor the carriers.
- Understand the current market conditions – If shippers can understand when the market is about to shift to tight capacity conditions, they can begin working toward treating their carriers better before the crunch occurs. There are various freight indexes that while not foolproof, can help to predict a tightening market. These include The Transportation Services Index, the Active Truck Utilization Index, DAT Trendlines, and the Cass Freight Index.
- Provide longer lead-times and a more predictable schedule for tenders – When a preferred carrier rejects a tender, shippers are forced to delve deeper into their route guide. This leads to higher costs, but the deeper a shipper is forced to go when lead times are short, the more likely it is the initial pickup window cannot be met as capacity options diminish significantly.
- Be Flexible on Pickup Dates and Hours – Carriers become more efficient, and thus more profitable, when they have flexible pickup options. So, if instead of a one-hour window for pickups, there is a three hour-window, the carrier can improve their efficiency.
- Think Creatively – One example from the report titled “How to Thrive During a Tight Capacity Market” involved a shipper that sandbags on flatbed trucks switching to dry vans it become increasingly difficult to secure flatbeds. The dry vans did not have as much capacity, but they did have a much higher tender acceptance rate.
There are several more very good suggestions I have not mentioned. I don’t want to steal all TMC’s thunder. If you have responsibility for shipping, it would be irresponsible not to become familiar with this site.