What makes a good shipper?
That may be the most important question facing the trucking industry today. How shippers answer it—and carrier perceptions of that response—could determine if and how freight gets moved, the cost of moving the goods, and how effectively this large and important business is able to function at a critical point in its history.
What is known today has been known for some time: Truck capacity has shrunk by 15 to 20 percent since the onset of the four-year freight recession in 2006, and with the possible exception of specialized equipment like "reefers" or flatbeds, it isn't returning to its pre-recession size any year soon. About 10 percent of commercial drivers are expected to leave the business over the next several years, pushed out by advancing age, tough new government safety rules, and a general weariness of the road and the short shrift their skills often receive. Diesel fuel prices reached a national average of $4.14 a gallon on April 2 and could go higher. Asset inflation is hitting everything from trucks to tires, to motor oil to labor. And ever-increasing government regulations have added to those operating costs and subtracted efficiencies from the supply chain.
With capacity contracting and costs rising, carriers can no longer afford to accept and move all freight that comes their way. And shippers no longer have the luxury of contributing nothing more to the relationship than the goods they tender.
"Ten to 15 years ago, the definition of a good shipper was 'one that had a lot of freight,'" said Dan Van Alstine, senior vice president and general manager, dedicated services for truckload and logistics giant Schneider National Inc. "Today's definition is much different."
Refrigerated truckload carrier Marten Transport Ltd. believes it can define a good shipper, at least on paper. Marten executives keep a checklist—in the form of a PowerPoint presentation—that outlines how a "perfect shipper" should behave under more than 25 different scenarios.
Yet finding "shipper wonderful" seems consigned to the realm of fantasy at Marten, at least for now. For example, about 30 percent of its refrigerated freight still doesn't get loaded or unloaded within a generally acceptable two-hour time window, according to Tim Kohl, president of the Mondovi, Wis.-based carrier. This is no small problem for Marten, considering its drivers have only 11 hours in a day in which to haul and that they operate specialized tractor-trailers that can run $200,000 per unit and are costly assets if they're not moving.
The pressure on both sides is unprecedented. Yet the burden seems to fall more on the shippers. After all, it's their freight—and their business—at stake. Many shippers have never needed to think about being "sticky" with their carriers. The time to start thinking about it, experts said, is now. Herewith are four steps to being a "good" shipper:
1. Trust, communicate, and participate. These are time-worn maxims. But they are worth repeating, especially since all carrier and third-party logistics (3PL) executives interviewed for this story did so.
"Carriers don't want to be treated like vendors," said Ben Cubitt, who sits in the middle of the fray as senior vice president of consulting and engineering for Frisco, Texas-based 3PL Transplace. "They want you to be fair. They want you to engage in fact-based discussions. And they want to be recognized for doing a good job for you."
This recognition, Cubitt said, should come in the form of consolidating more business with a top-performing carrier, especially if the carrier has invested in building a broad product and service portfolio that reduces a shipper's costs and improves convenience.
Shippers should also take pains to roll out the freight within four to six weeks of accepting a carrier's bid, Cubitt added. Too many shippers wait longer than that, a habit that tests a carrier's patience and won't win that shipper many friends.
In a world where shippers no longer dictate the terms of engagement, carriers will insist that their customers take the time to understand their business and proactively communicate any changes in their shipping patterns that may affect capacity allocations, carrier executives said.
J. Edwin Conaway, senior vice president, sales for Con-way Freight, the less-than-truckload (LTL) arm of Con-way Inc., said shippers must have a realistic understanding of their carriers' capabilities and must negotiate in good faith based on that knowledge.
Conaway said for shippers, a little knowledge could go a long way. He said many of his customers' traffic departments have been "too focused on the freight charge, while upper management did not realize there was a freight company that could improve their customer experience. Many times, it is our salespeople that help them uncover the unanticipated solution."
Conaway said the solution often doesn't show up as a cost reduction on the shippers' freight bill. Rather, it manifests itself in the benefits of fixing internal defects that lead to improved customer satisfaction metrics.
2. Don't skimp on the data (but make sure it's both accurate and up-to-date). It's been said that "there is no bad freight, just bad pricing." And bad pricing frequently stems from being forced to work with incorrect and insufficient shipper data, according to carrier executives.
Schneider generates up to 35 percent of its volumes through the competitive bidding process. However, the data contained in many bids is often stale or inaccurate, according to Van Alstine. As a result, Schneider finds itself in the uncomfortable position of revising its initial bid based on subsequent changes in the data elements, he said.
"I believe carriers ... are going to be far more diligent in tethering their pricing to the bid data and far more assertive on recalibrating their pricing to the actual freight experience," he said.
Kenneth Burroughs, vice president of revenue management for UPS Freight, the LTL unit of UPS Inc., urges shippers to provide as much information as possible about their business and freight. "Our advice is to give us all of the available data, and let us sift through it and see if we can build a proper network solution around it," he said.
Burroughs said that without robust data streams, it becomes difficult for UPS Freight to assign the proper amount of truck cube to the freight, the paramount objective of any successful shipper-LTL carrier relationship.
"We really need good, accurate data that we can model," he said. "Unless we already have a lot of experience with that customer, we don't know how the characteristics of their freight will fit into our network."
The lack of visibility has in the past made for unpleasant surprises when UPS Freight received the goods, according to Burroughs. "We were assured of one thing, and we got something else," he said.
Full knowledge of the customers' unique freight needs triggers a virtuous cycle, according to Burroughs. It gives UPS Freight insight into the customer's business requirements, which then helps it build workable shipping and logistics solutions. Without that level of data detail, the task would be much harder, he said.
3. Know your accessorials. The treatment of accessorial charges is a perpetual work in progress. In the past, carriers lacked the visibility into the various scenarios that triggered accessorials to price them correctly. And shippers have pushed back on many of the charges because they were unsure they were responsible for the exceptions that triggered them.
"Transport companies have much to improve upon in terms of the type of accessorials and the pricing of them," said Conaway of Con-way Freight.
But the give-and-take process is coming to a head, and that's a good thing.
High-tech advances, notably the advent of electronic on-board recorders (EOBRs) that monitor a truck's every move, give neither side room to hide. Gone (or fast going) are the days when drivers prepared paper logbooks—and sometimes fudged the information in them—and their employers would not be the wiser. EOBRs, whose mandatory use is the subject of legal action but which are now being used by many large truckers, does away with paper logs and makes it impossible for drivers to exceed their hours-of-service limits.
Using the technology, the trucker knows exactly where its drivers are, what they should be doing, and what keeps them from accomplishing the task within the number of hours in a day they can operate. The good news is that both sides now have increased visibility into the problems and their causes, and that's a key step toward achieving solutions, according to Kohl of Marten Transport.
Kohl contended that as technology becomes more pervasive in fleet operations, the standard shipper demand of lumping accessorial charges into the base rate rather than breaking them out as individual line items should be tossed over the side.
Unless the items and charges are listed separately, Kohl said, carriers will never be fairly compensated for the actual cost of the individual services, and the specific issues that slowed the trucks down and warranted the accessorial fees in the first place won't be identified and corrected.
In a business where time is money and driver delays cause real-time cash burn, "it's critical that drivers get paid for the 'down' time that they don't control," Kohl said.
However, shippers should not blindly accept all accessorials without first understanding what they mean and then negotiating any appropriate changes with the carriers, according to Charles W. Clowdis Jr., a long-time trucking executive and head of supply chain advisory services at consultancy IHS Global Insight. "Most carriers will be more than willing to discuss and negotiate," Clowdis said.
To pre-empt the aggravation of having to work things out across a bargaining table, Clowdis has advised that, when appropriate, shippers compensate truckers and drivers for going—sometimes literally—the extra mile upon request.
"If you need a driver to go into a residential area to make a delivery, give him a few extra bucks for doing it," he said.
4. Show a little love. For years, there has been mounting evidence showing that drivers jump companies and leave the industry not because of inadequate pay or benefits, but because of lifestyle issues and from shabby treatment they receive from shippers and even from their employers.
It is no secret that drivers have historically been taken for granted. But as demand continues to grow, rig counts shrink, and government programs like CSA 2010 remove unsafe drivers from the highways, qualified drivers are well-positioned to work wherever they want. Shippers must pay heed to the changing environment and end their cavalier treatment of drivers, executives said.
"If you call me and say 'I need my load picked up at 3: 00' and I get there at 3: 00, don't screw me around and load me at 4: 30 or 5: 00," said Clowdis of IHS. "The shipper needs to keep the driver and truck moving, and do so in a friendly manner."
With drivers constrained by federal hours-of-service rules, each minute they sit idle waiting for loading or unloading is one minute of lost income. It also creates operational headaches for carriers whose drivers are running shorter lengths of haul per day than ever before and have more daily stops to make as a result.
Kohl of Marten said as U.S. commerce and distribution becomes more regionalized, carriers like Marten find themselves operating over shorter distances and making multiple stops. Each stop involves loading and unloading, and ups the risk of delays that could derail an entire workday, Kohl said.
"Our typical loaded length of haul today is about 550 miles," he said. "It used to be 1,000 miles."
If a driver arrives early or is on time but the load isn't ready, a shipper should be prepared to give him or her a comfortable rest place with something to eat or drink, rather have the driver leave the facility and drive around looking for a truck stop that may or may not be convenient, carrier executives said.
Van Alstine of Schneider said the carrier was pleasantly surprised when a large customer—a big-name retailer that Van Alstine would not identify—consulted Schneider on the development of a dedicated rest area for drivers while designing a distribution center.
"They wanted to know what would be an appropriate space for drivers to get easy access to their docks, and to rest and wait, if need be. They wanted to make sure they designed a driver-friendly distribution center," he said. "We were thrilled."
The anecdote is an example, albeit a small one, of what could become a new and positive chapter in the long-contentious yet necessary relationship. The consensus among carrier executives is that shippers understand that working from a perceived position of strength is no longer sustainable, and they are far more receptive than in the past to the idea of treating their carriers as partners rather than adversaries.
"Programs like CSA are forcing shippers to be far more engaged in our business than before," said Van Alstine. "We definitely hear that they are more willing to get involved and better understand our business and our needs."