There has been a lot of buzz this year around being a “shipper of choice,” but companies that thrive don’t only apply these principles when capacity is tight and drop them when conditions improve — they innovate for the long term.
The following tips for being a better shipper than your peers require a mindset of strong, collaborative relationships with your carriers, not a transactional, antagonist one. Although there are no universal numbers about long-term savings, those who have made the transition agree the investment pays off.
There is good reason to consider ditching the transactional model. This shipper rides a roller coaster, a stock market wave. A strategic shipper lives in a calm ripple, up and down but very smooth. In pro-trucker markets, a strategic shipper will save a few percentage points — maybe a nickel or dime per mile — versus a transactional shipper, according to trucking executives. In a pro-shipper market, a transactional shipper will pay less because they are relentless at the negotiating table.
The question of how to be a shipper of choice has become a popular one because of the shock in early 2018. People tend to not prepare for the worst-case scenario until after suffering. Spot rates reached all-time highs this year, rising more than 30 percent year over year in January and February, according to DAT Solutions and Truckstop.com. Dry-van contract rates grew between 10 percent and 18 percent nationally, according to DAT. Conditions have slowed since August, but the damage was done psychologically.
If you want to be a strategic shipper, it requires innovation and a cultural adjustment. Here are seven ways to make the transition, according to TranzAct Technologies and the Center for Supply Chain Innovation at Auburn University.
1. Adopt systems thinking: Transportation is one part of an integrated supply chain
A common theme in these tips is that transactional shippers think in silos, while strategic shippers understand how each department is interconnected — a synergy necessary to be the best company possible.
Sales connects to manufacturing, to warehousing, to dock operations, to transportation. Each team needs to understand what it needs from the others. But often transportation is considered an afterthought, not a part of larger discussions, and information is provided at the last moment.
“When an order arrives, ideally the information shouldn’t only be broadcast to inventory folks and the distribution center. The information should immediately go to the transportation group so they can start to coordinate the capacity to move that freight. Too often transportation folks are only notified when the pallets are sitting on the docks,” said Brian Gibson, executive director of the Center for Supply Chain Innovation at Auburn University.
Cost is a subset of this tip. Transportation is an important, but not the only, expense in the supply chain. A decision in one department can raise or lower expenses in another. Slashing transportation budgets can create problems for the cross docks, warehouses, and customer service, which hurts sales. Poor communication can cause delays, detention fees, and anger carriers and customers. Total costs should be calculated for the entire supply chain.
2. Avoid antagonistic tactics
It’s easy for shippers to feel like a trucking company took advantage of them in 2018 at the negotiation table. Likewise trucking executives believe some shippers took advantage of them in 2016 and 2017. An “us-against-them” mentality might work with industry competitors, but being confrontational or adversarial with a transportation provider benefits no one. People have long memories, so if a shipper treated a carrier poorly in 2016 and 2017, then the carrier retaliated in 2018.
At best, antagonistic shippers paid a lot more in rates in 2018. At worst, antagonistic shippers were dropped altogether or couldn’t find a truck on short notice.
Trucking companies might roll over when freight is hard to find. But they also will drop you quickly when they can pick and choose which freight to haul.
3. Strengthen relationships, collaborate with carriers
Trucking companies make profits when they are productive. They want drivers to complete as many jobs in a day as possible. It’s like other businesses.
A driver delivering 20 pizzas earns more money individually and for the employer than delivering 10 pizzas. An Uber driver doing 20 fares per shift will make more money than 10 fares.
Ask your carrier to audit your supply chain and make recommendations on how to eliminate waste on loading and unloading. Detention fees cover some costs of excessive waiting, but truckers would rather make more deliveries than assess accessorials fees or increase rates.
“We needed to find partners to work with to improve value across the supply chain. We needed to change the way we interacted with carriers to control our costs,” said Josue Munoz, vice president of global supply chain with Colgate-Palmolive, on a December webinar hosted by TranzAct Technologies, National Shippers Strategic Transportation Council, and the Council of Supply Chain Management Professionals.
He continued, “We changed our outlook and competencies of some our individuals about not only how to purchase transportation but also about how the operation of our warehouses affect our carriers and their perception of us.”
4. Plan ahead by forecasting
If a shipper wants to hit a transportation budget for 2019, forecasting is one way collaborate with your carriers to strengthen a relationship in tandem.
Munoz discussed how Colgate offers two-week forecasts. SanMar, a midsized shipper, offers three-week rolling forecasts.
Derek Leathers, CEO of truckload carrier Werner Enterprises, explained how he’s seeing more shippers provide forecasts and better communication. He hopes this step in the right direction with shippers continues even after the capacity becomes abundant again.
“How do we make this stick? Because if this becomes the new normal of how to do business with one another, it only stands to reason that it comes with economic efficiencies,” he said. “With crystal clear forecasting this peak season, we’ve seen a high service level, higher execution level, better visibility, and less strain to actually deliver more freight. This is a lesson we should take forward in good times and in bad.”
5. Invest in technology, then drive decisions based on data
You don’t know what you don’t know. Technology can take bits of data, aggregate them, and provide trends and analysis that can lead to insights and conclusions that weren’t possible before. Technology can provide better information to compare the costs of different transportation options, how each provider is performing, and even offer predictions based on historical trends.
From a basic level, technology gives shippers track-and-trace capabilities to know where freight is located and incidents that could cause delivery delays.
One example is tracking and tracing in the cold chain perishable space.
“At times when there is an incident, like with spinach, or the latest example being romaine lettuce, if you cannot pinpoint where your product is coming from or going to [on a granular level], it all winds up being pulled off the store shelves and it all ends up getting destroyed,” Gibson said.
If there is visibility lot by lot, then not every batch of produce needs to be recalled.
Home Depot is an example of a company using technology to closely monitor performance. Vice president of transportation Michelle Livingston said the home improvement retailer has a tender acceptance rate of greater than 90 percent.
“We are constantly asking carriers for feedback about difficult vendors, difficult [distribution centers] to deliver to, difficult stores. And we’re working with our business partners to make changes so that it’s a better place to deliver to or pick up from. It’s a slow process, but we’re plugging away at it,” Livingstone said on an August webinar hosted by TranzAct Technologies, the National Shippers Strategic Transportation Council, and the Council of Supply Chain Management Professionals.
Weekly communication with motor carriers helps to nurture relationships and discuss operational problems. Transportation budgets matter, according to Livingstone, but exceptional service will count more than poor service.
“When we get ready to launch the truckload bids for the following year, carriers who have performed well and want to maintain their lanes will retain their lanes. We will pull them out of the bid,” she said.
6. Clarify real needs, don’t splurge when it’s not necessary
Everyone in life has ‘must haves’ and ‘nice to haves’. Homebuyers might consider having three bedrooms a must have, for example, and a swimming pool as a nice to have. A car buyer might consider four-wheel drive as a must have, and a moonroof as a nice to have.
In the same way, a freight shipper has must haves and nice to haves. One shipper might need a delivery within 48 hours while another might consider it a nicety because 72 hours is good enough. It might also vary lane by lane. Perhaps a customer near Seattle isn’t as particular about delivery speed as one near Atlanta. No need to pay top dollar for expedited delivery for the Seattle customer.
“A must have could be to have two drop trailers on site versus eight or 10. It would be nice to have 10 because it would give us comfort in the event an emergency, but what do we have to have?” Gibson said.
For tracking and tracing, do you need know where the truck is every 15 minutes or is every hour or two good enough? Perhaps money spent on the expedited delivery and constant location updates isn’t necessary for the Seattle customer.
7. There is a lack of talent, so build a team to last
Most people want to be a doctor, a lawyer, or a teacher when they grow up. Few have dreams of becoming a supply chain director when they are 13 years old.
Gibson, a professor of supply chain management, said even among his students few seek to work in transportation.
"You don’t see people gravitating towards it as a career; you need to show someone it is a career path. Companies need to invest in their development [in transportation] or else all your institutional knowledge will walk out the door when someone retires,” he said.
Short-term thinking is a rocky road for a shipper. It might be great when trucking companies, railroads, or ocean carriers duel for your business. But short-term thinking is bad in the long term, many would argue. Paying less than peers when capacity is abundant can be joyous. Paying more when capacity is tight can be stressful.
Ask your C-suite: do you really want to be super happy or super anxious, and nothing in between? Or do you want to feel content, but not necessarily overjoyed, all the time?
The answer to that question will determine how you want to proceed as a shipper.