The recent controversial comments by shippers and carriers regarding the shipper-carrier relationship underscore the need for a calm and professional basis for shippers to deal with their preferred carriers in this current U.S. contracting season.
Here are 10 fundamentals to assist shippers to improve their carrier relations.
1. Acknowledge Supply and Demand.
Carriers operate in classic economic terms and react almost instantaneously to changes in supply and demand in their pricing, quickly adjusting rates up or down when their available space increases or decreases. They respond far more slowly in making changes in vessel supply to meet demand. Carriers’ contract prices will be higher in the current market for the coming year.
2. Be Informed.
Keep up to date on global market issues and carrier changes in pricing, services and management philosophy by reading trade magazines, Internet updates, blogs, trade association reports and carrier announcements.
3. Be Knowledgeable.
Know your business and the needs and requirements of your constituents. Keep up to date on the status of your firms’ and your vendors’ commitments and discuss problems, solutions and potential future steps to improve your carriers’ service.
Constantly update yourself and your staff about your firm and the industry. Attend industry educational seminars and consider bringing in outside training for you and your staff to help better understand carriers’ needs and perspectives.
5. Manage the Process.
Be invovled in the negotiation and contract process and maintain control and contact with your carriers throughout the contract term. Work to build more effective communications with your carriers and other potential vendors to provide alternatives. Keep your internal staff and divisions fully informed at all times about current status.
6. Make Informed Selections.
Know your carriers’ services and partners in each of your major trades. Look at their alliances, joint services and slot charters to ensure that you don’t have all your eggs in one vessel string. Consider the quality of service as well as the best rates when selecting carriers. Don’t try to force your views on carriers that are not a good fit (it’s like trying to put a round peg in a square hole). You will regret the misfit!
7. Be a Wise Negotiator.
Most carriers have made major changes in their management in the past two years. Be aware of these changes and try to understand the current management philosophy of each carrier that you seek to partner with. Be upfront and honest about your needs and challenge your carriers to be open with you as well.
8. Manage Expectations.
Don’t get angry when your vendors don’t meet your expectations. They are driven to get the highest rates from you. Use all you have learned in items 1 through 7 and be assured that you have done your best to match your firm’s expectations to the reality of the market.
9. Understand Conflict.
There is a natural built-in conflict between your task to obtain the best carrier service at the lowest price and the carriers desire to obtain the highest price for those services. Strive for win-win, but note that most successful contracts are the result of compromise by both sides.
10. Manage the Results.
Stay current with market conditions and economic trends. Constantly evaluate the latest performance and needs of your firm. Review your contract terms and be prepared to negotiate changes to meet revised targets. Contracts are not made to be broken, but they are subject to renegotiation during their term. Carriers understand this and will want to have the ability to implement higher rates and charges, even vessel by vessel. Shippers need to provide for options for changes as well.
Carriers need to remember that they have no future business without their customers. The old adage that the customer is always right still holds, but in these rough economic times, shippers need to work through the enmity to seek mutually beneficial terms of engagement with their carrier partners. Shippers can take control of their carrier relations by understanding the often conflicting goals that tend to create friction between them to achieve WIN-WIN long-term solutions with their service providers.
JOC TENs essayist John Morris has over 30 years of global logistics expertise with the military, shippers and carriers. As head of INTRANSCO, a veteran-owned small business, he consults on contract negotiations, e-commerce, government and regulatory affairs and education for the industry. He can be contacted at firstname.lastname@example.org.