Rate negotiations can be tense, especially in an unpredictable market. When negotiations go sour, shippers and carriers alike are forced to navigate stressed relationships on top of all the other industry headwinds both parties contend with on a daily basis. In a relationship-oriented industry like logistics, this can become a serious problem.
Strained capacity, strong volumes and surging rates have characterized the freight market for well over a year now. Major headwinds — including increased reliance on e-commerce, port bottlenecks and manufacturing shortages — continue to drive these factors.
“This is a very unique market and the first time in recent history where the market favors the carrier. In the past, shippers have over-projected on volume to create a buffer in order to protect themselves and their demand fluctuations. Typically, this results in the carrier not realizing 100% of the awarded volume,” Conner Doran, Emerge’s director of enterprise execution, said. “Now we have seen the market flip in favor of the carrier side. Carriers are removing some of that capacity that was originally allocated towards that award to play in the spot market.”
This extreme market shift has left shippers grappling with unsustainable rates and unpredictable service, often resulting in expensive spot transactions, delivery delays and unhappy customers.
Low tender acceptance levels and increased level of service failures have been the most difficult factors to manage, according to Tim Whitson, manager of warehouse and transportation systems analytics at Hormel Foods.
From a technology standpoint, Doran believes these market extremes are being exacerbated by poor forecasting and a general lack of transparency.
Many industry experts, however, predict that the market will see some rebalancing by mid-2022 as companies recover from pandemic-related shortages and the industry adapts to changing consumer behaviors.
Shippers are buoyed by the promise of falling rates in the coming months, but this optimistic outlook may put even more strain on rate negotiations in the meantime. With potential rebalancing on the horizon, shippers are less likely to accept today’s inflated rates over the long term.
Increasingly, shippers are opting for shorter — monthly or quarterly — bid cycles in an effort to avoid locking in unfavorable rates for a full year. This solution may also prove less damaging to the existing shipper-carrier relationship than heated negotiations over long-term rates in a volatile environment.
Stanley Black & Decker has moved from yearly bids to monthly bids, as the company does not feel it is responsible to ask carriers to commit to yearly pricing at this time, according to Matt Jolles, senior full truckload analyst at Stanley Black & Decker. He also emphasized the importance of paying close attention to all the fine details come bid time.
While negotiations may become a temporary sore point between shippers and their transportation partners, there are still plenty of things both parties can do outside of that process to stabilize and strengthen those relationships.
Shippers should continue to focus on the driver experience at their facilities, improving overall operations embracing shipper of choice-like behaviors. This includes improving dwell time at facilities, according to Whitson. High dwell times — and therefore wasted time and money — can drive a wedge between even the most cordial shippers and carriers.
From the carrier side, relationships can be strengthened through a commitment to transparency and good service, according to Jolles. He encouraged carriers to “ask questions, overcommunicate and meet performance requirements” in order to keep shippers happy.
Additionally, shippers and carriers alike can utilize emerging technologies to strengthen their relationships. Technology can facilitate better forecasting through data aggregation, allowing for more transparent negotiations from the very beginning. Data doesn’t lie, and accurate forecasting allows both parties to be sure they are getting a fair deal.
Technology can also be used to streamline communication between partners. While this seems simple on paper, communication mishaps can lead to serious service issues and even devastated relationships over time. By having an easy way to keep in touch, complaints — and compliments — can be communicated in real time, stopping problems before they occur and preventing issues from festering under the surface.
“Shippers talk about how they need to improve operations and dwell times at facilities,” Doran said. “Utilizing technology such as the RFI feature within the Emerge Freight Procurement platform allows a shipper to ask those questions to their partners and consolidate all that information at the click of a mouse.”