Carrier Partnerships: A Matter of Trust
Building trusting relationships with your transportation partners makes the best sort of business sense.
Driver shortages, capacity crunch, tighter hours-of-service requirements, port congestion, high prices at the pump. This familiar litany of complaints gives shippers migraines and strains their relationships with motor freight carriers.
Through most of the period since deregulation in 1980, when there was excess capacity and more competition, "shippers ran the game," says Dean Wise, a partner in Norbridge Inc., a logistics consulting firm based in Concord, Mass. "But in recent years, the power has shifted to carriers."
Wise knows one shipper who calls himself and his colleagues "desperate housewives," because they thought they had long-term relationships with their carriers, but they don't.
Given conditions in the transportation industry today, shippers and carriers often behave like adversaries trapped in a marriage gone sour. But the best way out of today's bind—too much freight, fighting for too little equipment and too few drivers—is to cultivate the trust that leads to productive shipper-carrier partnerships.
"Shippers now have to think about helping their carriers, rather than just dictating to them," says Wise. "The big potential for change rests on collaboration."
"In years past, shippers did whatever they wanted, yet could always find a carrier," says Masao Nishi, assistant vice president, supply chain management, at food service distributor SYSCO in Houston. "But now transportation is often very difficult. We understand we need to develop collaborative relationships with our carriers."
"When the economy was slow, we gave away a lot of our products and services," admits Jim O'Neal, president of O&S Trucking, a truckload carrier in Springfield, Mo. "There was a relationship built where the shipper said, 'I'm the boss and you'll do whatever I ask you to do at whatever price I tell you. And if you don't, there are five carriers in the lobby that will.'
"Now, however, the shipper says, 'I need five trucks today, and I don't care what it costs.'"
One big factor that breeds mistrust between shippers and carriers is "bad information and a lack of communication," says O'Neal.
Poor communication can lead to unpleasant surprises on both sides—for example, when a shipper closes a plant that a carrier serves. Suddenly that carrier no longer has trailers in position to pick up freight from a second shipper in the area.
"It's no different from relationships between spouses or children," notes John Gentle, global leader, transportation affairs at Owens Corning, Toledo, Ohio. "If you communicate and tell people what you expect, they'll either know what you want and choose not to act, or they'll work with you to make it happen."
Understanding the Challenges
But communication is not always easy. "It's difficult to get the shipping community to understand the challenges that carriers face, such as the driver shortage and rising operations costs," says John Pope, chief executive officer of Cargo Transporters, a truckload carrier that is part of the CT Group, Claremont, N.C.
Establishing a base for mutual understanding has grown harder since the 1990s, when many companies downsized their traffic departments.
"Traffic departments that had a staff of 30 people now operate with five, and they often are too overworked to communicate effectively with carriers," says Lance Craig, president, Craig Transport, Perrysburg, Ohio.
Mistrust also emerges when shippers don't live up to the goal of creating integrated supply chains, says Joel Sutherland, president of Envoy, an Indianapolis-based consultancy.
For all the talk about cooperation among different departments—marketing, transportation, warehousing, customer service—tied to an organization's supply chain, "it hasn't happened," says Sutherland, who has worked on both the service side and on the shipper side.
Transportation departments are still rewarded mainly for cutting their own costs and getting efficient service from carriers, not for contributing to enterprise-wide goals.
"The focus on reducing costs drives a wedge between shippers and carriers," Sutherland says.
Shippers create friction when they conduct "megabids"—putting all their lanes out to the lowest bidder instead of nurturing long-term partnerships with carriers, says O'Neal. They also inspire mistrust when they ignore harsh economic truths.
"It's unrealistic to expect a carrier to provide a rate today and guarantee it for 18 months or two years," he explains. Shippers must understand that rising wages and worker's compensation premiums, the need to buy new equipment, and other factors keep pushing up carrier costs.
"I won't throw a shipper out if somebody else can pay me a nickel a mile more, because I don't want the shipper to throw me out when a carrier bids a nickel a mile less," O'Neal says. "But if I'm losing money on freight, I've either got to stop hauling it or get a price increase."
"Companies or industries that have traditionally squeezed carriers to get the lowest rates in high-capacity times are not getting their freight covered now," says Sutherland.
Carriers also bear some blame for creating bad blood. Now that the balance of power has shifted to their side, "carriers have not been diplomatic about handling this transfer of capacity and the leverage it has created," says O'Neal.
"Many carriers, myself included sometimes, have been arbitrary and capricious. We've turned the tables and said to shippers, 'You'll pay me this amount to haul your freight, and if you don't, there are five customers who will.'"
Although the capacity shortage has given them greater power when negotiating with their customers, carriers have troubles of their own in the present economy.
"Even with the capacity imbalance, carriers are still going out of business," says Nishi, and even large, successful carriers are feeling some pain due to the continuing issue of rising fuel costs.
"Carriers charge fuel surcharges and shippers pay them," he says. "Even so, the economic reality is that carriers can't pass on all their extra fuel costs to all their customers."
Despite all the forces that set them at odds, some shippers and carriers do build partnerships that keep them working together through good times and bad.
"Shippers that have had long-term relationships with their carriers can rise above the changes in supply-and-demand dynamics," says Craig. "Carriers and shippers tend to act differently depending on whether tonnage is up or down. But trusting partnerships help insulate companies from those fluctuations."
To create trust, each partner must understand what the other needs from the relationship.
Carriers, for example, need a chance to learn about the shipper's culture, Craig notes. Some customers operate training sessions for Craig's managers and executives, so they can learn more about how these shippers run their businesses.
O'Neal also wants information to help better understand his shippers. He wants to know his customers' future plans, growth projections, financial picture, and areas where he can help.
Shippers that win his company's loyalty are financially stable, pay freight bills promptly, implement fair contracts, employ experienced traffic managers, and commit to treating transportation providers with respect.
"Loyalty is built up based on how we handle business year over year, how we attempt to take cost drivers out of the business, and a realistic view of a carrier making a decent return on invested capital," O'Neal says.
Shippers, too, seek a steady exchange of information with their service providers. "Sharing information about how well we're doing for each other starts to create trust," says Gentle. "You have to make sure you listen and offer ideas, and that all parties participate in finding solutions."
Ongoing communication is important in day-to-day operations as well. SYSCO, for example, seeks from its carriers a regular stream of messages about the status of freight in transit.
For SYSCO's national carriers that use satellite tracking systems, "it's information they already have, and they can send it electronically. "
"The problems are with the smaller carriers, which SYSCO relies on heavily," Nishi says. "Small carriers don't have a lot of this information readily available. We ask them to enter the data in our Internet-based transportation management system, but they're not always good about doing it."
Attract Good Drivers
Carriers can take specific steps to build trust into their relationships with shippers. At Craig Transport, one commitment is to "give customers the best drivers to haul the goods. To do that, we have to be a company that attracts good drivers. It's all about service," Craig says.
Because drivers work on the front lines, trucking companies are in a good position to spot where the partnership is efficient and where it needs work. "It's important that we have an avenue to clearly communicate to customers where we can drive out costs in the system," Craig says.
Carriers that survived the rigors of the early 2000s did so because they understood their costs and their operations.
"Shippers who work with their carriers will get the trucks. Those who don't will pay much more for transportation. Carriers need to be sure they have the wherewithal to effectively communicate with customers about areas of opportunity."
To help cultivate trust with their partners, O'Neal and his sales staff make presentations to customers and shipper groups such as the National Industrial Transportation League. They provide updates on issues influencing capacity and rates, such as hours-of-service regulations, diesel prices, and insurance costs.
"I'm amazed at the response I get," O'Neal says. At many companies, middle managers oversee transportation, and they need hard data to justify their decisions to their superiors.
"They're hungry for information," O'Neal says. "As an industry, and as a specific carrier, I need to give my shippers that information, too."
At Cargo Transporters, the kind of activity that helps build trust generally happens on a case-by-case basis. "If we see opportunities to improve relationships with shippers, we work with them," Pope says, but the company doesn't have an institutionalized program to collaborate with all shippers all the time.
The Dating Process
One notable exception is Cargo Transporters' relationship with Owens Corning, which has developed a far-reaching program to improve communications with its carriers.
For Owens Corning, a successful partnership starts "with the dating process—understanding which carriers we want to do business with, and whether they share our culture, beliefs, expectations, and realizations," Gentle says.
"Getting the carriers we decide to work with set up and trained takes a long time," he adds. "It's not a process that happens in a heartbeat." Owens Corning operates a web portal for its carriers that it uses, among other things, to provide steady feedback about on-time performance.
"We are committed to telling our carriers how well they're doing. And they have the opportunity to refute information they feel the shipper is reporting inaccurately," Gentle says.
Once a year, Owens Corning sends each of its carriers an evaluation score card, then conducts a detailed, face-to-face review.
"Carriers walk away with a clear understanding of how well we see them," Gentle says, and how they stack up against other carriers. The manufacturer expects its carriers to create a plan for making any necessary improvements.
Carriers also evaluate Owens Corning, and the shipper develops an improvement plan of its own. That's one area where trust develops gradually.
"It takes more than one review for a carrier to believe it can tell us the truth," Gentle says. At the first review, a carrier almost always gives the shipper a glowing evaluation. One year later, "the carrier starts to realize we want to know real answers, and they don't hold back. When we get that, we know the carrier trusts us."
Owens Corning also operates several executive carrier councils—one for vans, one for flatbed haulers, and one for tankers. Several years ago, it added a dispatch council to discuss tactical issues.
Through these councils, Owens Corning tries "to involve the carrier community in its overall strategic plan—how it operates its business and distribution system," Pope says.
The company particularly tries to make life easier for drivers. "Owens Corning's goal, which it has emphasized time and again, is to become a shipper of preference with drivers, an important point when drivers are in such short supply," he says.
Tackling the Tough Issues
Responding to feedback from carriers, Owens Corning implements simple changes—such as making sure drivers don't wait too long on the dock—as well as complex ones. For example, the company adjusted its entire shipping schedule for the workers in the distribution center to accommodate the hours-of-service changes.
Owens Corning has also worked with its own customers to remove drivers from the unloading process, Pope says.
The company doesn't shy away from tough issues, such as how long it detains drivers at its docks, when working with carriers. "I ask carriers: 'How well do I handle detention issues? Rate me on detention.' Once you start talking about these topics, carriers realize that you're not hiding from the issues," says Pope.
At SYSCO, Nishi and his team have launched an effort to make life easier for the carriers that haul goods from suppliers to the company's distribution centers.
"If shippers don't work with their carriers, the carriers have a hard time making money. And if they can't make money, they can't haul freight, or even stay in business," Nishi says. Under the federal hours-of-service regulations, "drivers only have so much time to drive and generate revenue."
That's why SYSCO strives to turn equipment faster, often within two hours. That's a particular challenge because SYSCO has 70 operating companies around the United States, each with its own DC.
"Some of these companies do a great job, while others have a different attitude," Nishi notes. As it makes progress on a current initiative to centralize transportation management, SYSCO will put new policies and metrics in place to promote better performance at its DCs.
Besides unloading more efficiently, SYSCO will implement a drop trailer program to help turn trucks around faster.
"Carriers that do enough business with us could drop a full trailer, pick up one of their empty trailers, and go," Nishi says. "They don't even have to wait two hours; they can do it in 15 minutes." The company is also working with suppliers to cut delays on their end.
Another way SYSCO reduces friction with carriers is by using "shipper load and count," where a supplier loading a full truckload of freight makes an accurate count, seals the truck, and signs off on the load. "At the receiving end, as long as the seal is intact, the carrier is left completely out of any problems with discrepancies in the count," says Nishi.
Other strategies SYSCO employs to improve trust with carriers include being fair about filing freight claims, and self-invoicing to pay freight bills promptly.
Also, "we try to build some predictability into our transportation," Nishi says. "Instead of placing orders with suppliers at any time, for example, we suggest certain days for certain orders." While orders should be based on demand, it's possible to alter purchase dates so carriers can expect to make certain trips regularly.
A Mixed Bag
Although collaboration between shippers and carriers may be the key to getting by in a tight market, "frankly, it doesn't always happen," observes Dean Wise. "It's a mixed bag. Some shippers are true role models, and many Fortune 500 companies are working to improve."
Based on what he hears from carriers, however, "some shippers are collaborating, some are paying lip service to it, but overall it's not working."
Yet, making collaboration work may be crucial to the business health of both shippers and carriers. Especially given trucking companies' problems recruiting drivers, "it will become more important for the shipper and carrier communities to work together on a number of issues," says Pope.
"Both sides have to figure out how they can best help one another to overcome the capacity issue and still get product to market quickly, while maintaining the cost structure shippers have established in their distribution networks."
Succeeding in this effort comes down to a matter of trust.