Without doubt there is a great deal of tension in shipper-carrier dealings at the moment. It's certain to strain relations in many cases and destroy long-term partnerships in others, but that's not a bad thing. In fact, a little conflict would be...
Without doubt there is a great deal of tension in shipper-carrier dealings at the moment. It’s certain to strain relations in many cases and destroy long-term partnerships in others, but that’s not a bad thing. In fact, a little conflict would be good for both sides. Tough issues have been allowed to remain unresolved for years – hey, we’re Canadian we don’t like to argue. It’s time we addressed those issues.
Carriers who have been swallowing cost increases for well over a decade are rightly fed up and are demanding rate increases. Their hopes for achieving such are buoyed by what many believe will be a significant shortage of capacity supported by the highest barriers to entry since deregulation more than two decades ago flooded the market with new carriers. Yet shippers aren’t likely to lie down and accept significant hikes to their transportation costs.
First, transportation makes up the lion’s share of most companies’ supply chain management costs and shippers are becoming increasingly aware of the importance of supply chain management to financial performance, thanks in large part to some revealing research. The most recent study, conducted by Accenture and Stanford University, used data from more than 600 Global 3000 companies across 24 industries to contrast the financial performance of companies considered to be supply chain “leaders” with companies considered to be supply chain “laggards”. It found that the annual growth in market value of the leaders was 10 to 30 percentage points higher than that of the laggards – and they likely didn’t get there by having higher costs.
Second, our own research (a five-year study of supply chain trends conducted by our sister publication Canadian Transportation & Logistics in partnership with TSI Group, Supply Chain & Logistics Canada and The Laurier Institute of Wilfrid Laurier University) clearly indicates the degree to which supply chain managers – the very people carriers have to convince to accept higher rates – are under the gun. They are being asked to tackle significantly more responsibility over a wider geographic area with fewer resources than five years ago.
Finally, shippers’ preoccupation with cost reduction is deeply ingrained. When our sister publication Canadian Transportation & Logistics partnered with Ryder Canada, Supply Chain & Logistics Canada and the Canadian Institute of Traffic and Transportation (C.I.T.T) on a major research project (more than 700 shippers were included) last fall to gauge the mood of shippers, it found that reducing costs was considered a primary challenge by 73% of the respondents; 79% if the manufacturing sector was looked at in isolation. That concern considerably outpaced other, “sexier”, concerns, such as the need to enhance customer service or expand service to new areas.
It all leads me to believe that the fight for higher rates – as just a cause at it may be – will not be as easy as some carriers are making it out to be, particularly in price-sensitive markets such as hardware retail. Shippers will demand to know what carriers have been doing to improve their own operational efficiencies and thus keep a lid on costs. Carriers that have invested in such strategies will have a credible story to tell; those that simply show up with their hand out for an increase may find it slapped away yet again – after all, the shortage of capacity does not extend across all lanes and shippers do have other modal options.
As I said from the outset, the shipper-carrier relationship is in need of some confrontation. There is much to discuss and resolve – shipper practices that contribute to carrier inefficiency is another important matter that should be on the table, for example. But I hope what is not lost in the confrontation is the reality that the major issues faced by both shippers and carriers can be best resolved with both partners working closer together.
Shippers will require deeper relationships with their carriers if they are to make significant improvements to their supply chains. Carriers will not only have to continue to expand their services to meet their customers’ needs but do so in a more tactical manner with a better understanding and communication of the associated costs.
So let’s go ahead and have the confrontations we’ve been avoiding for years. Let’s clear the air so we can proceed with the deeper relationship both sides must embrace.