Why every transportation deal should be anchored in writing

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I’m continually puzzled by our industry’s approach to contracts. Few carriers feel the need to have contracts with customers and many flat-out refuse to see the value in them.

We have no problem sending millions of dollars in equipment to a customer so he can “try us out.” If he doesn’t like our service, we expect him to cordially return the iron so it can rot against the fence until sales can find some other “tryout” customer.

Compare that to other service industries. These days, you can’t get a company to cut your grass without a long-term deal.

I was never a big proponent of contracts myself. I was schooled that if you needed fine print to help manage the relationship, you’re toast, so what’s the point? I got my wakeup call when I was approached to sell our business. I saw how valuable those signed contracts are to a potential buyer.

That’s not the only reason to have contracts with customers. Here’s why I believe every transportation deal should be anchored in writing before a gram of freight is moved:

Do We Have a Deal?
By far, the worst business deals I’ve made are ones done with friends. You spend five minutes talking about business and 55 minutes laughing about your days playing junior hockey together. Once the skids start to move, you quickly realize the consequences of not ironing out the details.

Contracts force you to have hard conversations early in the process. They formalize terms you can come back to if the relationship starts to unravel, and will improve your chances of doing quality, long-term business together. Short-term relationships suck!

Be a Fortune Teller
Contracts are no fun to negotiate. Maybe that’s why we avoid them. They require lots of give-and-take in order to find common ground.

Personally, I think this is a good thing. Is there a better crystal ball for you to gaze into and see what a company would be like to work with? A contract negotiation can give you a glimpse of your future together. It’s also a great way to test how committed a customer is to actually doing business with you.

Take It Upstairs
Very few transportation decision-makers have the authority to sign a contract on behalf of their company, just like many of you. Most deals need to go up to the corner office in order to be executed.

Getting into the C-suite can expand your relationship and raise your profile within your customer’s organization. If things do go south, most customers will work a little harder to protect the status quo before admitting to their boss that you were a big mistake. A contract can also provide insurance should “your” guy move on to greener pastures.

Merry Christmas
In my sales heyday, there was what we called a “herpes” rate—one that lasts forever. It’s more common than you think and definitely gets around: according to a 2011 study by Simon-Kucher, only 57% of logistics companies even attempted to increase their prices.

Contracts and contract negotiations let customers know that an annual rate review is on the agenda. Contract anniversary dates also put a stop to “Ho-Ho Syndrome”—the act of meeting customers in December to wish them a Merry Christmas and ask for an increase starting on January 1.

Turn to Green
If you still feel no incentive to lock in your largest customers, consider what will happen when it’s time to sell your hotdog cart. Contracts give your suitor a sense of security that the business is not all about you. If you think contracts aren’t worth the paper they’re written on, wait until they impact the amount of green paper you can get when you sell.

Ironically, the same reason to have contracts with customers is the same reason they should have one with you: they’re a foundation for a profitable, long-term relationship. I’m not saying you should immediately go ask all of your current customers to sign on the dotted line. That will only raise red flags.

However, I am suggesting that you show up for another “tryout” only after a deal is inked.
Mike McCarron was one of the founding “M”s in MSM Transportation before the company was purchased by the Wheels Group. Based in Toronto, he currently works for Wheels in mergers and acquisitions and can be reached at mmccarron@wheelsgroup.com. Follow Mike on Twitter @AceMcC.

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Mike McCarron is president of Rite Route Supply Chain Solutions and a partner in Left Lane Associates. You can reach Mike at mike@riteroute.ca

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