By Rob Haddock
What’s the value in being a shipper of choice?
Why should customers care about the efficiency of a driver or the financial and operational health of a transportation provider? Those managing freight budgets get recognized for their financial acumen — not for being conscientious of dwell time, driver experiences, a carrier’s ability to cover overhead. Right?
Price may have been the primary goal of freight procurement and operational teams prior to 2018. But that’s changing. The 2024 Shipper of Choice awards will highlight those shippers that are ahead of the curve (you can nominate here).
The U.S. freight ecosystem is faced with an aging driver population. Timelines for adopting autonomous trucks continue to get pushed further into the future.
Every shipper or receiver shares a pool of drivers and the companies that manage them. It is in the ecosystem’s best interest to maximize the drivers’ efficiencies respectfully while helping to maintain trucking companies’ profitability.
RELATED: FreightWaves opens 2024 Shipper of Choice nominations
I believe a Shipper of Choice strives to find the balance between service, costs and relationship management. Once they establish the right mix of each, they document how and why they operate with these guiding principles so the behaviors can be transferred across the perpetual rotation of transportation management teams.
Unfortunately, very few shipper transportation groups have tenure at the leadership level and without proven legacy operating documents, strategies and tactics are subject to change overnight, which can be challenging on relationships.
Let me explain the three circles. The sweet spot is achieved where they all overlap.
1. Service
If you are a CPG shipper, you know the penalties for late delivery — fines deducted from invoices, with negative impacts on future sales volumes as buyers lose faith in the company’s delivery promise.
In a loose market, an overabundance of capacity might lead to “misbehaving.” But anyone with at least one freight cycle’s worth of experience knows how quickly market conditions can change. Shipper of Choice behaviors are a way of life, regardless of the market.
Tight markets have demonstrated that Shippers of Choice tend to get the capacity they need at the contracted rates while more difficult customers play “Go Fish” on the spot market.
Depending on your company’s sensitivity to being on time, or primary tender acceptance, and the ratio of transportation costs regarding the “cost of goods,” service may or may not play a big factor. Perpetual chaos and unreliable service might be an acceptable way of operating for some shippers. For many, it is not.
If the organization is tired of failing to achieve service promises, then a behavioral change is needed and will be more than welcomed by your customers and transportation providers.
2. Costs per load
Market intelligence tools are fantastic at capturing current lane rates with a set number of miles between X and Y, but every origin-destination pair is different (e.g. live vs. drops, flexible dock appointments, credible lane volume projections and so on).
In theory, a 500-mile shipment at $2.25 per mile should cost $1,125. But during the carriers’ pricing process, they have to layer in inefficiency costs, which at $75 per hour could tack on another $100 to $200 per load.
Additionally, if the volumes are wrong, then carriers are deadheading, or trying to find capacity above the contracted rate. If this surcharge was quantified, perhaps shippers would take a greater interest in reducing.
Shippers of Choice tend to have a good understanding of what they’re paying compared to the market, as well as what inefficiencies exist in those lanes where they’re operating above a tolerance level.
Lane volume projections are a critical component of a carrier pricing strategy as they try to connect lanes to create continuous moves or backhaul relationships. The more accurate the lane volumes, the better the opportunity to optimize a driver’s time while reducing empty miles.
Someday, carriers — enabled by technology — may be able to itemize the cost of a lane broken out between the miles driven, and the inefficiency penalty built in to absorb the waste. This visibility could inspire behavioral changes and even help justify a shipper’s investment in technology or infrastructure if there was a visible return on investment.
In the meantime, shippers should do their best to keep a driver moving while providing credible lane volumes. Carriers should continue to reward those shippers with capacity and acceptable rates.
3. Relationships
Do you have a friend that you can always count on, good times and bad? This is the type of relationship behavior that a shipper should have with at least a few of their carrier partners.
Experience has proven these kinds of relationships to be highly beneficial for shippers. In bad times, they ensure capacity while keeping costs within percentages of the financial goal. In good times, they reduce the stress associated with trying to beat down prices to submarket levels.
The strongest relationships include business reviews, some as frequently as quarterly, which yield savings and service commitments for the shippers, while providing the carriers with assurances that volumes on certain lanes will continue to operate year over year.
Strategic carriers know your business. They know the quirks of the origin and destination pairs, and they price the lane rates accordingly. They may proactively come to a shipper in a soft market and lower their rates while rarely asking for rate increases in a tight market.
Strategic partner carriers are recognized during many shippers’ annual transportation summits, setting the bar for other carriers to follow if they want to move away from a transactional to strategic relationship.
Finally, relationships build trust. The shipper can trust a carrier will do everything possible to tender and deliver the load on time at the right price. For the carrier, consistent volumes with operators who also care about going the extra mile to ensure drivers feel respected and are kept moving.
Why be a ‘shipper of choice’?
It’s simple: it’s good business sense and it’s how we want our customers to treat us.
If you’re unsure how your carrier network might perceive your company, you should try to find out. Take some time to solicit nominations from them for the 2024 Shipper of Choice awards (you can encourage them to fill out the form at this link). You’re also welcome to nominate your own company, in which case, we ask participants to be honest when they answer.
If you don’t wind up making the Shipper of Choice list this year, it might be time for a behavioral change.
