After two years of unprecedented pressure on margins, maximizing profitability during the upturn in demand tops the agenda for most shippers. Dr. Alan Saipe and I presented our annual look at transportation trends during the recent SCL-CITA annual conference and that was one of the main points made by Dr. Saipe.
Reducing costs was the second highest item on shippers agenda, which is not a surprise considering the focus on maximizing profits. But increasing customer satisfaction was considered just as important, which makes for some interesting decisions in the years ahead since those two goals may not be mutually compatible. Dr. Saipe’s research, conducted on behalf of the Canadian Industrial Transportation Association, also found that 8 in 10 shippers believe customer requirements are becoming more demanding and three quarters believe the transportation function is growing in complexity as a result.
Are most Canadian companies truly capable of meeting demand growth that is becoming more complex while warding off costs that eat into profitability? I don’t think so.
Three-fourths of respondents to a global supply chain trends survey I recently read considered demand and supply volatility and poor forecast accuracy to be the biggest roadblocks they currently face. Yet as the publishers of the survey, PRTM Management Consultants, pointed out many companies failed to do their homework during the downturn and surging demand now increases supply chain deficiencies in scope, scale, and speed.
Not only did many companies not implement strategies to prepare them for the upturn and future volatility but in the worst hit sectors companies put in place short-term survival measures to tightly manage inventories, costs, and cash flow that may be harder to transition from than one may think. That may be especially so with companies where key members of the supply chain team were laid off as a cost saving. A substantial number of survey participants said that problems with the supply chain organization prevented their companies from capturing the benefits of the economic recovery. Nearly one-fourth of survey respondents pointed to their organizations’ inability to make quick decisions in response to sudden changes in demand or comparable challenges.
Clearly shippers wanting to improve profitability while at the same time deal effectively with demanding customer requirements have their work cut out for them. I see great opportunity in this for motor carriers ready to once again work in collaborative relationships with their shipper customers.
Both LTL and TL carriers as well as couriers would enter such discussions from a position of strength because shippers believe their service levels from these modes improved over the past year. In comparison, marine, rail and intermodal service was thought to decline over the past year, according to Dr. Saipe’s research. Motor carriers also score well when assessed on areas such as operation effectiveness, knowledgeable and helpful customer service, straightforward administration and quickly dealing with any problems that may arise.
Motor carriers often have visibility and insights into shipping patterns that are invaluable to shippers looking to boost their profit margins while at the same time improve customer service. Unfortunately, over the past couple of years many shippers set aside such discussions in favor of aggressive rate cutting. Long-term relationships were severed as shippers pursued short-term cost savings by placing their freight on the spot market.
If capacity tightens, as most transportation experts suggest it will as the economy heats up, the easiest and most expedient thing for motor carrier executives to pursue is aggressive rate increases in return. But simply pushing the pendulum the other way for a few years does not address the bigger picture of ensuring the long-term viability of shipper clients by addressing both their profitability and customer service concerns. It’s also a risky strategy as our own research clearly shows if rates rise sharply over too short a time span, shippers who do have options become much more likely to consider switching modes. Prior to the recession almost 50% of shippers were reporting they had switched modes for at least part of their shipments in response to higher rates and surcharges.
This is the time for motor carrier executives to show the maturity of their company and their industry by pursuing responsible, steady rate increases in conjunction with transportation practices that help shippers keep both their customers and shareholders happy.
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