A new era in trucking financial discipline need not mean dark ages for shippers.
To achieve sustained profitability, trucking companies will have to work more closely with their customers to manage costs, trucking officials and consultants say. That means higher rates, but not price gouging.
This time, they think, real carrier-shipper collaboration might help. After all, a more stable trucking industry would mean more stable access to capacity.
“From what customers and likely customers are telling us, they’re concerned about the future,” said Patrick E. Quinn, co-chairman of U.S. Xpress Enterprises. “Everybody got scalded a bit in June” by cuts in capacity, he said. “We have more and more customers contacting us to ask about services. It’s almost a reverse sell.”
As freight rates rise from recessionary levels, shippers are showing more will to work with carriers to manage costs and avoid inflationary price increases. “There are so many things you can do working together to drive costs out of the relationship,” said William T. Hupp, chief operating officer and executive vice president at Estes Express Lines. Technology is helping carriers and shippers identify cost reductions that once would have been overlooked, he said.
Carriers also may seek volume commitments and other concessions from shippers in return for guaranteed capacity and stable pricing in contract bidding negotiations. “Our contracts are really one-way, where we name a price and they offer a commitment to consider using us. That may change over time,” Hupp said.
Shippers may not have as much flexibility as carriers think, said Gary Girotti, vice president of the transportation practice at consulting firm Chainalytics. “There’s been talk of longer-term contracts, but it’s hard for shippers to guarantee volume (over an extended period),” he said. “At most shippers, roughly 25 percent of their lanes change every year. Plants shut down, supplier relationships change. It’s unrealistic for shippers to offer a three-year contract.”
He advises shippers to stick to the contracts they sign. “We preach that carrier contracting is a relationship. Wherever the rates are going, you have to flow with them, but you have to maintain that relationship. You’ve got to be fair to them.”
Shippers who followed that advice during the recession are having no problem finding trucks today, he said. “The people who took really aggressive rate reductions are the ones who came to me in April saying, ‘Why can’t I find any trucks?’”
Some shippers are turning to dedicated carriage to secure capacity. “We’ve signed contracts for an extra 200 or 300 dedicated trucks this year,” Quinn said. “Those shippers are guaranteeing their own capacity and fixing the price. They’re out of the spot market and they’ve guaranteed a quantity of trucks will be there.”
The pendulum also is swinging back from price toward service, said David Congdon, president and CEO of Old Dominion Freight Line. Before the recession, ODFL quizzed customers on how much price and service affected their purchasing decisions. At that time, it was 55 percent price versus 45 percent service.
During the recession, it shifted to 90-10 in favor of price, he said. “Today, as they’re seeing pricing go up,” Congdon said, “they’re focusing on service elements again.”
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