It pays to be a good partner
Being a "shipper of choice" can boost your chances of getting the service you need when trucking capacity is tight. But as our survey found, clear communication and respect for your carriers is good practice no matter what's happening in the market.
By Ben Ames
When shippers can't find trucks to move their goods, the result is often lost sales—a problem that not only hits shippers' revenues but also impacts retailers, consumers, and other customers if goods don't arrive when they're needed.
In 2018, that scenario played out for many North American shippers as trucking capacity tightened to levels not seen in years, particularly in the truckload (TL) sector. The capacity crunch was a result of a combination of factors, including a robust economy that pushed up demand for trucking services, an aging driver population (and shortage of younger drivers to replace them), and new federal mandates for electronic logging devices (ELDs) that enforce restrictions on the number of hours a driver is allowed to operate a truck.
The truckload-capacity crisis began to ease in early 2019, but the question remained—how can shippers reliably secure trucks to haul their loads even as economic and industry variables shift beneath their feet? To answer that question and identify some best practices in transportation operations, DC Velocity teamed up with ARC Advisory Group, a Dedham, Mass., technology research and advisory firm, to survey logistics and transportation professionals about standards of excellence in managing transportation. Just under half (45 percent) of the respondents had vice president or director roles; the rest were managers or held other titles.
The results showed that the unprecedented market challenges of 2018 have led shippers to rethink and revise their goals and expectations. Rather than focusing on reducing freight costs or maximizing service levels—the traditional measures of effective truckload management—they're directing their energies toward earning "shipper of choice" status with their carrier partners—a distinction reserved for those who demonstrate a willingness to cooperate and collaborate with carriers rather than treating them as negotiating opponents.
"The difficulty of securing transportation capacity in 2018 made it clear that benchmarks focused solely on freight costs or service were not good enough," says survey author Steve Banker, ARC's vice president, supply chain services. "In times of tight capacity, shippers need to be able to reliably secure [transportation for their] loads. Attention has turned to measures associated with being a shipper of choice."
COMMUNICATE TO GET CAPACITY
Of course, setting a goal of becoming a shipper of choice is one thing; actually becoming one is another. To determine whether shippers were backing up their talk with action, the study looked at respondents' progress to date in that regard and solicited their views on the most effective ways to get there.
One indicator of the quality of those relationships is first-tender acceptance rates, a measure of how often carriers accept (or reject) potential loads from shippers. If a shipper has been difficult to work with, carriers may be inclined to reject their tenders. And indeed, only 54 percent of the respondents to our survey reported truckload first-tender acceptance rates of more than 90 percent.
Perhaps that's not surprising. When we asked respondents "Have you developed a reputation among carriers as a tough negotiator, engaging in a long procurement process that has historically sought below-market rates?" more than half (53 percent) admitted that they had.
Better communication can improve tender-acceptance rates and help ensure that truckload capacity will still be available to them when the supply gets low, Banker says. For example, shippers can improve their chances of securing needed truck space by giving carriers advance notice of a pending surge in required capacity. Nearly three-fourths (73 percent) of respondents said they engage in this practice.
Giving carriers more leadtime can also raise tender-acceptance rates. Fifty-seven percent of respondents said they give carriers two days or less to accept a load—a tight timetable that may inhibit fleets' ability to take on that business. By contrast, 11 percent of respondents reported giving carriers six days or longer before a load needed to be picked up.
Another way to improve carrier relations is to help fleets keep their trucks on the road, rather than sitting in warehouse yards or at loading docks. Some carriers charge detention fees for long waits, but avoiding the delay in the first place is a better solution. Most shippers in the survey said they are efficient at turning trucks in their yards, with only 9 percent of carriers being held up more than four hours at origin facilities and just 8 percent at destination facilities.
Consistency in such areas as dwell times helps carriers avoid unanticipated delays and stick to their schedules. Respondents reported that they are doing well in this regard, with 86 percent saying their dwell times were fairly consistent at origin facilities and 77 percent saying the same for destination facilities.
Shippers of choice build strategic partnerships with their carriers. One way to do that is by inviting carriers to participate in joint business reviews on topics like improving processes or boosting profitability. Among respondents who follow this practice, quarterly reviews are most common (cited by 38 percent), followed by biannual reviews (29 percent), annual reviews (27 percent), and monthly reviews (6 percent).
But being a shipper of choice is not just about helping to ensure carriers can make a fair profit on their loads; it's also about how shippers treat the carriers' drivers, Banker says. One often-cited measure of driver treatment is whether they're given access to bathrooms—that is, whether shippers allow drivers to use the restrooms at their facilities after long drives. There is plenty of room for improvement in this particular area: 21 percent of respondents reported that less than 25 percent of their destination facilities make restrooms available to drivers.
MANY ROUTES TO CUTTING COSTS
All that is not to say that shippers have stopped focusing on freight costs; in fact, freight rates are as important as ever. In their constant struggle to cut those costs, shippers often turn to benchmarking their routes—comparing their own rates with those for similar shipments and using that information as a bargaining tool. Eighty-two percent of respondents follow this practice at the lane level, the survey showed.
Benchmarking may be a great way to get a competitive rate, but it's not always easy to do. One way to ease the pain is to automate the process. Shippers today can choose from a wide variety of transportation management systems (TMS) that provide comparative rate data for a range of truck lanes and routes. Even so, the use of software for benchmarking is not yet universal practice, the study found. A full 22 percent of respondents said they are not using a TMS.
Another time-honored way to get discounted truckload rates is for a shipper to provide a backhaul associated with its original shipment, enabling the carrier to make money on the return trip rather than pulling an empty trailer. But the practice is difficult to carry out. A full 43 percent of respondents said they were "never" able to provide backhaul opportunities for their carriers.
Half of the respondents said that they centralize their truckload procurement, choosing to work with fewer, larger carriers on a larger number of lanes. In addition to keeping costs down through economies of scale, this approach also takes advantage of large carriers' ability to provide real-time shipment visibility, consulting services, and advanced analytics.
When shipping goods over less-predictable lanes or when sending last-minute ad hoc shipments, companies tend to turn to freight brokers or book capacity on the more-expensive spot market. But booking freight through long-term contracts is a less costly, more reliable approach, and indeed, half of the survey respondents said they follow that best practice.
KEEP YOUR EYE ON THE BALL
Despite the benefits of building stronger relationships with carrier partners, shippers tend to relax their efforts in times when capacity is plentiful.
"When shippers need trucks, they talk about partnerships, reasonable scheduling, treating drivers fairly, and providing consistent freight. However, when capacity is readily available, they change their tune and stress lower prices and more reliable service," Banker says.
But the periods when power shifts from shippers to carriers re-occur periodically, Banker warns, noting that the 2018 crunch was preceded by another significant capacity shortage in 2014. For that reason, "it makes sense for shippers to remain a shipper of choice in good times and bad times," he says. "It is only prudent risk management to work to become, and remain, a shipper of choice on an ongoing basis with at least some carriers on some lanes."
About the Author
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.
More articles by Ben Ames
Resources Mentioned In This Article
Join the Discussion
After you comment, click Post. If you're not already logged in, you will be asked to log in or register.
Feedback: What did you think of this article? We'd like to hear from you. DC VELOCITY is committed to accuracy and clarity in the delivery of important and useful logistics and supply chain news and information. If you find anything in DC VELOCITY you feel is inaccurate or warrants further explanation, please ?Subject=Feedback - : It pays to be a good partner">contact Chief Editor David Maloney. All comments are eligible for publication in the letters section of DC VELOCITY magazine. Please include you name and the name of the company or organization your work for.