Scrambling for peak season, searching for capacity, and trying to contain freight costs – the daily battle for today’s transportation professional. The last year has been tumultuous with the introduction of Electronic Logging Devices (ELDs), the driver shortage and “unexpected” spikes in rates. This storm, however, has been brewing for years and transportation teams have come to assume that rate increases would not materialize. Given the experience of the last 12 months, 3PLs and brokers are accepting the “new normal”. This is not a storm that is passing anytime soon and, to help whether it, developing strong carrier relationships is critical.
In this post, we will look at transactional versus collaborative carrier relationships and the activities involved. With strengthening relationships, technology is playing an increasingly important role, not only for efficiency but also for analytics and better decision-making.
Transactional Versus Collaborative Relationships
Traditional thinking for carrier relationships involves periodic bids to drive cost control. Historically, even with the threat of the driver shortage that has been evident for years, the pending price pressure never really materialized until 2017 through 2018. This created a false sense of security of cost control, further reinforcing the transactional-based model. Ultimately it results in a lack of trust which costs more in times of scarcity. There are limited executive relationships, and it becomes hard to honor special requests or demands outside the tight contracts.
A recent customer I visited performs annual bids across 50 carriers every fall, with a resulting turnover of 35% of their carrier base. The customer also had aggressive visibility requirements and invested a lot of time with carriers to implement the program. While continuous improvement is necessary, the company ended up losing the investment it had made because of the carrier turnover.
Most transportation executives believe the current environment is the “new normal”, which requires more collaborative and longer-term carrier relationships. While collaborative relationships are not warranted across the entire carrier base, they are becoming mandatory for top carriers and critical lanes. Shippers and 3PLs are moving away from regular annual bids to expand quarterly business reviews. These reviews are themselves changing to include more information sharing, aligning on processes improvements and setting common goals versus a simple review of performance metrics and a beat down. Finally, holding annual carrier symposiums are a growing best practice. These bring together all the major carriers and stakeholders, creating even more opportunity to drive improvements.
Optimization, Analytics, and Real-time Freight Visibility
Shippers and 3PLs have leveraged TMS technology for many years to optimize carrier loads and reduce costs across truckload and less than truckload. More recently, shippers and 3PLs are confronted with expanded delivery expectations to serve ecommerce, home delivery and just-in-time manufacturing requirements from customers. To serve these new demands, additional carriers need to be incorporated into the plan including parcel, pool distributors and last mile carriers. Finally, to address the capacity crunch, shippers are also expanding their fleets and dedicated carriers as well as optimizing across all modes.
Carrier technology has typically lagged behind shippers and is also further constrained by new regulations, such as hours of service (HOS) and ELD mandates. In the last few years, however, with cloud-based carrier transportation management system (TMS) technology and collaborative logistics networks, carriers now have much better utilization and control of their assets and visibility to profits. With better analytics, coupled with the driver shortage, carriers now can be much more selective in determining what business to accept, and determine which lanes and customers are most profitable.
Connecting shipper technology and carrier technology represents the biggest opportunity to strengthen relationships and drive the next level of performance and cost improvements. There is tremendous innovation in how real-time freight visibility and logistics networks are delivering results. Implementing real-time freight visibility reduces detention, lowers dock congestion, improves customer service and eliminates manual efforts for load tracking for both shippers and carriers.
Collaborate on Both Business Objectives and Technology Strategy
In assessing how to strengthen your carrier relationships, companies can evaluate how business objectives align and how technology can be applied.
When carrier periodic bids are appropriate, include technology requirements such as the ability to provide real-time freight visibility, accept electronic tenders and generate invoices electronically. Quarterly business reviews (QBRs) should include common analytics reviews for on-time performance, as well as metrics on dock congestion and lane profitability among others. Leverage annual carrier symposiums to innovate across carriers on improvements. This balanced approach enables carriers to evaluate their investments to support a longer-term relationship versus a transactional one that may only last a year. Given the more volatile transportation environment, ensure contracts have provisions to be flexible.
Finally, make sure that relationships with carriers are cross-functional, including at the executive level as well as with operations, IT and procurement areas. Don’t let procurement be the main channel of the relationship. Collaborating across data scientist teams is also a huge opportunity for shippers and carriers that have invested in analytics.