Carriers play a vital role in successfully moving freight. And it’s a tough job. Especially the last decade, which is characterized by glooming trends like driver shortage, congestion, rising customer expectations and a continuous imbalance between transport capacity and demand.
There is no doubt that moving freight has become more challenging for carriers over the years, with low margins and no room for mistakes.
“That’s not my problem”
Why should you, the shipper, care about this?
Well, because your customers are expecting an excellent logistics service. Once again, this became clear during the pandemic, where shippers worldwide struggled to keep the flow of goods moving, disappointing a lot of customers and jeopardizing production lines.
But this was an exceptional situation - and customers were merciful.
But be aware. These exceptional situations are the new normal. Moving freight has become a game of exceptions, and customers will be less forgiving when the next crisis hits.
Shippers that successfully instill resilience into their logistics operations will thrive in the new normal. Others will keep on fire fighting, moving from one crisis to the other.
But guess what, your level of resilience, relies greatly on the performance of your carriers. If they fail, you fail.
It is time to stop setting your carriers up for failure, and move from a cost squeezing model to a value creation one.
Digitally enabled vs Digitally squeezed
The relationship between carriers and shippers has historically been rather complicated. Shippers looking for cost savings launch new tenders, and select carriers solely based on the cheapest rates. Shippers invest in carrier networks that impose transactional costs for each shipment and slot the carrier receives and books.
Meanwhile, the carrier is sharing his visibility data, at no cost. They understand that sharing data is a way of improving their service towards you, the shipper.
Fast forward to 2020. And in times of transport capacity shortage, shippers want to become ‘Shipper of Choice’ in an attempt to ensure capacity. However, when demand for transportation exceeds supply, the power shifts to the carriers. They can now cherry pick the shippers they want to work with.
And guess what - shippers still operating the ‘squeezing the carrier’ model won’t be picked. Bye bye resilience.
Do your carriers see you as ‘Shipper of Choice’?
A brilliant, yet broken, business model
Don’t get me wrong - shippers still need to focus on reducing freight spend and improve operational efficiencies, now more than ever. But not at the expense of quality.
However, I have serious doubts about certain outdated business models where the shipper pays, and the carrier is imposed additional costs for each transaction.
I mean, it’s brilliant! Especially for those in charge of the carrier network….
I’ve been trying to find an analogy to illustrate this model, but honestly couldn’t find one which illustrates its absurdity.
Shippers investing in these technologies need to realize 2 things:
Your total cost of ownership (TCO) is much higher than initially calculated.
Why? Because carriers embed these imposed costs into their rates and pass them back to the shipper, and rightly so.
So every euro that your carrier has to pay to the operator of the carrier network, the carrier adds, possibly with a markup, to his invoice.
And all your carriers are charged the same amount per order received or slot booked. They don’t benefit from economies of scale, so the price per transaction remains the same regardless of the volume you generate on the network.
Just think about it. Not only does your initial investment cost you actually times x, where the majority of the costs are hidden in your freight spend. But you also don’t benefit from economies of scale, because the costs passed on by the carrier is based on a non-negotiable fixed price per transaction.
And it gets worse - imagine that the operator of the carrier network suddenly decides to raise the carrier’s fee per transaction… who do you think will eventually pay the bill?
I bet your transport procurement manager won’t be happy… nor your carriers.
You’re annoying your carriers by forcing them to use a platform, and letting them pay for it.
All carriers that I’ve spoken with in the past indicated that when they have the choice between 2 shippers, they would choose to work for the one not using Transporeon or similar carrier network, thus avoiding those extra costs.
It’s time to abandon these outdated ‘carrier pay’ models. Stop squeezing your carriers, it doesn't really help you in becoming ‘Shipper of Choice’.
Instead, choose your carriers carefully, and build up a relationship which is based on collaboration and trust.
Cherry pick your carriers
I have worked 10 years at Trimble, one of the leading telematics providers in the world. During this period I’ve talked with a lot of road carriers, all across Europe. And one thing I observed is the huge difference in maturity levels when it comes to digitalization. And it’s not always the larger carriers that are most digitalized, on the contrary.
So, next time you launch a tender, pay attention to what your ideal carrier profile looks like.
What level of digital maturity do you expect, what service level, what languages does the driver need to master, are they capable of sharing GPS data, can they provide real-ETA’s, how will you measure their performance, …
From the tender results, first select carriers based on the match with your ideal carrier profile, then look at the most economically attractive ones.
If you have segmented your logistics service, do this exercise for each of your segments. You probably don’t want to use premium carriers for small occasional customers. Or worse, use less reliable carriers for your most important customer.
Collaboration is key
Once you’ve built your contracted carrier network, you can start exploring ways of improving the collaboration.
Partnering with your carriers can be done on different levels. Convince them of the benefits of adopting self-billing, and in return, agree to shorter payment terms. Reward carriers that always show up in time for their time slot by giving them a higher priority when booking. Ask for reliable visibility data, but also be transparent in expected turnaround times. These are just some examples.
You don’t have to do this exercise with all of your carriers, but, the Pareto principle also applies here: focus on your most important carriers and deepen that relationship, based on win/win.
Transportation excellence has become an important differentiator for shippers, where efficiency and resilience are equally important. To take your logistics to the next level you highly depend on the performance of your carriers. Stop setting your carriers up for failure and move from ‘carrier squeezing’ model to a ‘value creation’ one. By doing so, carriers will reward you ‘Shipper of Choice’.
And when the next crisis comes, or the transport capacity gets a hit, you’ll be prepared - where other shippers will be desperately trying to find capacity amongst its frustrated carrier base.