Shippers want a more balanced truckload market in which to move freight.
Throughout the year, Jeremy Search, Mars Inc.’s procurement manager for North America, has seen the quality of his truckload service decline. The customer service he received from carriers has been worse than in previous years, and he said he’s spending more money on capacity to get this subpar service.
According to the latest data from trucking industry analyst Cass, freight expenditures in August were up 8 percent over the same period in 2013, and August’s expense was 10.8 percent higher than in December. On the spot market, van rates were up 8.7 percent in August, year over year, with refrigerated rates seeing a 9.1 percent increase, and flatbed rates climbing 9.5 percent.
Recently, Search started asking other shippers if he was the only one experiencing this scenario with truckers.
“I went out to my shipper colleagues and shared my service data with them,” he recalled, telling them, “I don’t believe I’m getting the same value for money I was three years ago.”
Out of a dozen major shippers, only two people responded to Search’s simple question. One shipper said there was no way of measuring the quality of service he received from shippers, while the other said that he’d share his data with Search, but it would be for his eyes only. While Search simply wanted to see if he was in the same boat as everyone else — to make sure he wasn’t an anomaly — he ran into a tight-lipped group of shippers who shied away from talking about even the most general issues with carriers.
“Nobody wants to share the challenges they’re faced with,” he said.
Search’s experience with and observations of the carriers have convinced him that these companies are in control of the truckload industry. While he admits that carriers have real concerns —regulatory pressures, aging fleets of drivers, and swelling demand that can’t be sated by available capacity — he submits that the core issue behind these challenges has been artificially created.
“Carriers have created this self-fulfilling prophecy where they say it was going to happen, and then they made it happen. They started to take back this control though a means of an under-supply of trucks,” he said.
One way to reverse this trend, Search said, is to unite shippers. By sharing common issues, shippers could start to shift the balance of leverage away from the carriers, making the market a leveler playing field. He wants shippers to concentrate on whether carriers are serving their customers on time, and how often shippers are getting turned down for freight. By gathering data from a wide swath of shippers on those issues, Search can turn anecdotes and disparate experiences into a more solid picture of the current market.
Bringing shippers together is important because carriers have been presenting a unified front through the media and organizations like the American Trucking Associations for years, he said.
“They’ve done a much better job of uniting together, sharing their problems, getting in front of the shippers to share those problems in a unified way, and adding validity to it by getting ATA on board to support their strategies,” Search said.
Beyond getting shippers to have a discussion about the shipper-carrier relationship and how carriers are dictating the terms in the current market, shippers have to focus on changing the way they do business on an individual level, he said.
When new entries come into any market, it creates more diversity and levels the playing field. For Search, this means shippers should look to broaden the number of carriers they use and encourage new carriers to enter the market.
Broadening a shipper’s carrier base is sometimes easier said than done. Many of them still use core carrier programs that give freight to the same few carriers. Search said this is exactly what the carriers want and is letting them drive the market unfairly.
“Carriers today want to increase dependency, and then hit you with a rate that isn’t sustainable long term and probably isn’t a very true reflection of the market,” he said. “We want to drive that market by increasing competition, increasing options that are available to us when we need them.
“We should be bidding consistently, we should be developing new suppliers – we should be making commitments to smaller suppliers so they can invest in their business — and growing that carrier base organically rather than just letting the carriers control it,” he added.
Broadening the base also includes alternatives to truckload shipping, and Search said Mars uses intermodal transport about 30 percent of the time. This number might not increase in the future, he said; rather, Mars might move from using intermodal companies to developing more of a relationship directly with the railroads themselves. And while intermodal is a substitute for road transport, he allowed that shipping by waterways or even air could work just as well.
Though times are tough for shippers in the current tight-capacity market — which carriers manufactured, to some extent, he said — Search is hopeful the truckload industry will come back down to equilibrium.
“As long as shippers do what they’re supposed to do, which is drive the competition and encourage development of new supply options, then in five years from now, there will be more available capacity, there will be more trucks on the road,” he said.
With the economy continuing to grow and trucking companies consolidating, acquiring, taking out trailers, and managing the capacity the way they’re doing, will likely create more tension with shippers.
“As a shipper, we’re faced with significant price increases unless we’re willing to do something about it, and that something should be consistently managed across lots of shippers in this market. I believe it is supplier development, instead of dependency.”
In this tight market, where carriers can almost pick and choose what loads to take, a building supplies shipper, who agreed to talk on background for this article, said he tries to be a model shipper. By using a free payables process, carriers the company uses get paid within seven to 10 days, making them more attractive than customers who pay at the industry average of 45 days.
The supplier’s company also uses pop-up fleets to make sure capacity is located where it’s needed. Finally, if it needs to be done, the company will add to its private fleet to expand capacity.
Discussing common issues among all parties is a way to start improving the situation, the building supplies shipper said. He thinks shippers need to start inserting themselves not in more aggressive talks with carriers, but in the national discussion about transportation spending.
“Shippers do not leverage their position or vocalize their positions as vehemently as they should at the state and federal level. Likewise, I would say that it’s incumbent upon the state and federal governments to solicit more commentary from industry and from shippers alike,” he said.
The logistics executive boils down the sometimes adversarial relationship between shippers and carriers — which really only started when capacity began to get tight — to the inflation of rates. Carriers have told him that driver shortages and increased demand for trucks are two major factors contributing to major rate increases, and to solve the first problem, more money needs to be thrown at drivers. This, of course, increases pricing for the shippers, but he said his customers can’t bear these increases to be passed through to them. On top of this, carriers, he said, are increasing rates without adding quality.
“Telling the shipper community that inflation is coming is not going to be well received if those proclamations are not backed with expected benefits that I can share with my own clients,” he said. “I can’t hear that inflation is coming without also having an expectation that service is going to improve as well. Inflation can’t be supported if capacity is not going to be addressed.”
The building industry supplier also suggested shippers work with carriers to address their needs and see where capacity is most available. This can help shippers optimize their supply chain while giving carriers needed business in underserved markets. These actions, as well as taking freight out of markets that have become too expensive, can help shippers take back a little bit of the market from carriers, he said.
Shifting cargo to intermodal transportation isn’t a cure-all action, he said, because intermodal carriers are having their own issues with bottlenecks and poor service. he added, though, that there is “plenty of capacity in localized one-day markets and also do not perceive that major point-to-point markets as overly challenging.”
Charles Smith, general manager of global transportation for Interstate Batteries, sees the current state of shipper-carrier relations as simply a sign of the economy. Carriers are out to make money, and as he put it, “a carrier wants to charge me as much as he can, and I want to pay as little as I can.”
Smith, who is also on the American Shipper editorial board, said in the last year, he asked for capacity at double the price on some lanes and still hasn’t been able to get trucks. He believes it will get worse because there’s no reason, he said, to not trust the driver shortage numbers that are being estimated. Recent figures say there will be a need for 250,000 drivers in a decade. So he doesn’t know if capacity is going to get any better, either on the truckload or the drayage side, so like other shippers, he’s had to get more creative with how he moves freight.
Interstate Batteries officials are managing their supply chain as if tight capacity and ever-climbing rates are the new status quo. That’s not to say a shift back toward carriers won’t occur, but Smith and his team are preparing for the worst-case scenario. Right now, his team is running risk-mitigation scenarios to see how best to prepare for tight capacity moving forward, and he’s also looking at new ways to purchase capacity. Instead of purchasing truckload capacity from a major brokerage operator, on some lanes, Interstate has moved into a cargo-bidding auction process. Smith tells carriers that they can bid on freight moving between two points, and he tells them the price that needs to be hit to secure the load.
“We’ve had some success with this program, and what we’ve found is we’re able to tap into capacity that’s where we need it,” he said. “The real solution is to have your own fleet. I think you’ll see more people go down that path — if you can afford it, and if you have the business for it.”
Shippers can’t work against carriers in the current market, and Smith said his team is also focusing on how to make it easier for carriers to do business with Interstate. This focus would include facility upgrades and making sure drivers get in and out as quickly as possible when picking up loads, so they can spend more time out on the road.
“That’s what we’re focusing on, not so much having the conversation with the carrier about why his rates are so high,” he said, adding there’s really no point in complaining to carriers about the current state of the market.
“What can I say to a carrier that has more business than he can carry?” he said. “He’s in it to make money, and he’s going to take the freight that gives him the most return for his investment. It’s a carrier’s market, and until capacity increases, it’s going to stay that way.”
Another way to swing the pendulum back toward shippers, Smith said, is to build more time into planning. That gives the shipper additional time to deliver freight and may allow for longer shipping times through intermodal. In fact, Smith booked his first intermodal load at the beginning of September, using the truckload alternative on a shipment between California and Iowa. While Smith said intermodal will never be a large part of his business, it gives him more options.
“It’s not going to change significantly our dependency on trucks, but we’re walking in a direction to say, ‘How do we change the way we move cargo?’” he said. “I don’t think intermodal will ever reach a point where it will have a significant impact, but we have to at least start talking about things.”
Increased forecasting is another piece of the puzzle, he said, adding Interstate is currently doing more forecasting than it ever has before.
“It used to be that if you were a buyer or a planner and you didn’t forecast properly, you’d just spend more money,” he said. “Well, that’s not so easy so more. You just can’t throw money at the problem as easy as you could in the past. Money can’t get you out of a hole like it used to.”
At Mars, Search is frustrated with the current state of the market, and he doesn’t see it getting much better in the near term unless shippers voice their concerns. He sees that carriers have taken control of the conversation, and if shippers won’t band together and talk about issues, they need to look internally and focus on how to win back leverage.
In the end, Search has a simple message for shippers.
“I would say that their strategy should be designed to ensure a continuous development of supply in the market. To me, that’s the key,” he said. “If we create an environment of dependency on the carriers, it’s only going to get worse.”
This article was published in the October 2014 issue of American Shipper.
