How to Resolve the Current “Tug of War” between Shippers and Carriers
October 9, 2014
October 9, 2014
Over the past few weeks, there are a couple of items that have come to my attention that inspired me to write this blog. First, I had the pleasure of sitting in on the annualMasters of Logisticswebcast, sponsored by Logistics Management. This is the 23rd year that these high quality researchers have surveyed a large sample of shippers and carriers to get a “read” on the current state of the industry. As always, the study produced a number of interesting findings. The one that caught my eye is the disconnect between shippers and carriers. The researchers labelled it a “tug of war.”
The results highlight that shippers and carriers, at this point in time, have conflicting business objectives. On one side we find freight carries looking to recover from the economic downturn and offset the rising costs of driver wages, higher fleet costs and regulatory changes. With capacity tight and drivers in short supply, trucking companies are seeking to maximize profitability.
At the other end, shippers are trying to reduce their costs while managing increasing demand uncertainty from all customer levels. “In fact, many shippers are asking for cost reductions at the same time that they’re asking for improvements in service,” says Karl Manrodt, one of the lead researchers. How do you reconcile these opposing views?
Some companies are coming up with white papers to educate the shipping public on the challenges that carriers are facing. Within the past few weeks I received two good ones, “Industry Challenges” from JB Hunt and “Truckload Capacity in 2014, What’s Causing the Capacity Crunch and What Can Shippers Do About It?” from DAT Solutions. These are useful, well written documents. They do help create an understanding of the issues being faced by shippers and carriers. They also contain some helpful tips on how to obtain additional capacity and secure competitive rates. Unfortunately, written documents have limited value.
The key to bridging the gap between shippers and carriers is face to face communication. As I think back over the years, the current “tug of war” brings back memories of 1999. Some of you may remember the concerns over Y2K and the worries that the year 2000 would bring a meltdown in computer systems throughout the world. As President of a large freight broker at the time, I remember the conversations I had with our top 10 carrier partners. While addressing the Y2K issue, we had an opportunity to discuss various aspects of our business relationship. This was very productive and is clearly what is required now.
The starting point is to first focus on those areas where there is common ground. The results of this year’s results show that shippers and carriers are aligned on two key points:
1. Strategic/core carriers add value to companies through the transportation services they provide.
2. Strategic/core carriers help companies achieve their business goals and objectives through the transportation services they provide.
The results of the 23rd Annual Study of Trends and Issues in Transportation and Logistics suggest that the winners in the “new normal” business environment will be those companies that pull together in order to achieve their opposing objectives. This involves two critical facets: establishing the gaps that exist between current and desired future practice and then mutually deciding upon the priority of actions to close them.
In other words, carriers and shippers that master the gap will have to determine how they can leverage their knowledge and expertise to collaborate even when they have conflicting goals. From my perspective, there are two key gaps that need to be discussed. Coming out of these discussions must be solutions to bring the two sides together.
The Carrier Friendliness Gap
In these days of tight capacity, carriers cannot afford to work with carriers that have inefficient and costly freight management processes. As one carrier mentioned to me, drivers are getting very “picky” about the carriers they work for. Carriers that have customers with inefficient processes are losing drivers. Closing this gap is certainly a logical starting point. The carriers’ drivers and dispatchers can name the shippers that have poor practices. Shippers and carriers need meet and talk face to face to improve efficiencies.
The Spot Market versus Core Carrier Gap
With limited assets and drivers, carriers are looking for shippers that will view them as partners and make multi-year commitments. Manufacturers and distributors that use one carrier today and another tomorrow, to save a few dollars, may find themselves in difficulty in the years ahead. This applies to companies that play the RFP game every year. It is time for shippers to make a paradigm shift in their thinking and look at removing costs through better freight management rather than bashing carriers over the head on price.
“This is where strategy really matters,” notes Tommy Barnes, president of Con-way Multimodal, one of this year’s survey analysts. “Companies have to share their strategic plan with the carriers so that they can better meet the needs of the customer. And on the flip side, carriers need to share their plans as well to make sure that there is alignment. Misalignment drives up costs and increases the potential for misunderstandings.”
In a tug of war, only one side wins at the expense of the loser. Abraham Lincoln famously noted that “a house divided cannot stand.” The internal warring, bickering, and contentions of a nation makes it weaker and vulnerable to external threats. In the same way, supply chains are weakened when its members attempt to gain an advantage over the other, losing sight of the other competing supply chains on the field. While a shipper or carrier might win in the short term, they neglect to take into account the future consequences of these actions. Further, the current business environment makes the existing atmosphere between carriers and shippers a detriment to long term success. Both parties will win when shippers view their supply chains and their supply chain partners as strategic weapons and carriers align their businesses around shippers that are willing to be efficient and make multi-year commitments. This will require leadership from both sides to overcome the current “tug of war.”
Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to transportation and logistics organizations to help them improve their profitability. All posts by Dan Goodwill