Looking Beyond Rates: The Road to Smoother Carrier Contract Negotiations

Tags: Trucking, Transportation Management

Carrier-supplied data can provide valuable insight for writing contracts, but shippers who want to pave the way to strong business relationships must dig deeper.

This article is excerpted from Logical Logistics: A Common Sense Primer for Your Supply Chain by Michael J. Stolarczyk, president, Kontane Logistics.

Economic recovery is on the way, and not a moment too soon. Shippers and carriers across all transportation modes that struggled through the Great Recession, suffering billions of dollars in losses and setting back their business by years, are feeling better about the economy and trade environment than at any point in the past two years. Retail sales are surging, and dramatically depleted inventories are being rebuilt.

Winter 2010 brought cargo backlogs resulting from capacity shortages, but shippers and carriers appear to have found middle ground in resolving their differences. The true test of how both sides respond to the recovery will come as shippers and carriers wrap up what could be the most important contract negotiations in years.

Will carriers be true to their word and end the rate-cutting wrought by their pursuit of market share? Will shippers become true partners in a market where the success of their transportation providers determines profitability and speed to market? Will the empathy and collaboration that both sides have long pursued but seldom achieved finally have staying power — or will both sides retreat into their business-as-usual mentality when the inevitable recovery picks up steam?

Strong carrier-partner relationships are essential, because in an ever-more complex supply chain, a good contract goes far beyond mere price. To be successful in this new economy, empathy and collaboration work together, leading both parties toward profitability. Collaborating creates value, and executive empathy makes money.

To a certain degree, almost everything in business has become data-driven. It's common practice today that if you can't measure something, it doesn't impact the bottom line. Pure data can provide valuable insight; however, it doesn't tell a complete story. News items abound about businesses that have used numbers — real or manufactured — to justify prices and volumes that no longer exist.

A crack has developed in the data-driven, numbers-only foundation on which our industry built and expanded profits. Carriers, importers, exporters, and freight intermediaries can no longer base their relationships solely on slot commitments, no-roll clauses, general rate increases, no-show fees, and local charges. Vested collaboration, empathy for both partners' profitability, and efficiency are tantamount to long-term success.

We are moving into the "conceptual age" of business, when the right price is not necessarily the lowest price, and it's no longer enough for an executive to be a great numbers person. We now expect more of our leaders, and empathy and collaboration are desired qualities.

Understanding the feelings of others is good behavior, but empathy particularly pays off when organizations — that is, the executives who represent companies — understand what their customers and partners are feeling during the decision-making process.

Empathy and collaboration impact organizations' success during negotiations because both qualities involve focusing less on purely statistical internal issues, and more on collaborating to gain mutual benefit. The opposite of collaborative behavior is internally competitive, command-and-control behavior — a form of corporate self-absorption.

It is easy to hide behind pure numbers and cold, hard metrics, but hiding now will only create a one-sided, non-competitive, zero-sum contract winner — and doom the negotiations to failure.

Too often, business leaders focus their attention on rate structures during carrier-contract negotiations, while ignoring other important facets of a business relationship. Failure to address the entire scope of the relationship can cause a business to fall short of its goals.

Empathy and collaboration will bring to light more subtle issues that should be addressed to create mutual profits. Discussing the following 11 issues with your carrier will help your business achieve success in contract negotiations this year and beyond.

1. Pickup Performance. How can your delivery be on time if your pickup isn't? Late pickups cost more, sometimes at overtime rates. Before agreeing to a contract, know your partner's on-time pickup percentage and how the carrier calculates that measurement for each customer. On-time delivery statistics are calculated in a similar way and should be readily available on customer reports, broken out by customer and/or terminal.

2. Invoicing Accuracy. This often-overlooked metric can be the key to saving time and money. Carriers that invest in imaging systems allowing them to use information directly from a customer's bill of lading can ensure accuracy while improving invoicing efficiency. If this isn't one of the measurements you expect to receive from your carrier, it should be.

3. Claims Structure and Response Time. Getting a shipment to its destination on time doesn't matter much if it doesn't get there in one piece. How quickly are claims settled? What is the percentage of claims-free service? What is the claims ratio of the terminal that will serve your customers? Partners should make these performance statistics available for individual shippers and terminals.

4. Interactive Web Presence. Examining your partner's Web site can help you determine the availability of customer service when you need it. Is the Web site interactive in a number of ways to provide the information you need? The site should allow you to enter pickup requests and download imaged documents and customized reports. It should also offer a variety of track-and-trace capabilities, rate quotes, transit times, and terminal information.

5. Open Dialog. Determining how involved shippers are in their partner's decision-making process indicates the level of interest a company has in delivering quality service. Creating collaboration is essential because open dialog reveals positive and negative qualities of each organization.

6. Solid Communication and Responsiveness. You should be able to talk with experts in every department when you need them. Is the line of communication open and results-oriented? Maintaining a strong communication link goes hand in hand with developing a strong, effective partnership.

7. Customer Service. A quick and readily available information resource is invaluable to you and your customers. This resource should provide an answer to any question you or your customers might have about transporting or tracing your shipments. Some companies debate whether to invest in an "in the market" customer service presence, or if a centralized approach is more consistent and less costly. The mutual goal, however, must be that the core of a long-term, mutually beneficial partnership is excellent customer service.

8. Empathy and Proactive Account Management. A partner should know when and why a service failure occurred. If 98 percent of shipments are delivered on time, your partner should be able to explain what went wrong with the other two percent. Organizations should follow up on every service failure, not only to find out what went wrong, but also to initiate corrective action plans to ensure the problem does not happen again. Taking this stance will make the carrier a better partner, and, in turn, provide you with better performance.

9. Continuous Improvement Mentality and Training. The kind of training available to your partner's employees, how often they are trained, and the degree to which they are trained should be part of any organization's strategy of providing superior service to its customers. Details about the training process will indicate the carrier's emphasis on quality performance. Is there an operations training program in place that emphasizes freight handling? Are drivers trained? Does the carrier offer hazardous materials training to employees? What about general safety training measures? In addition to these training processes, an organization should have accountability procedures in place at each facility to help reduce costs and waste.

10. Multi-year Contracts. More industries are moving toward multi-year contracts. These deals create an even playing field for each organization to drive out costs through continuous improvement plans, and increase mutual, long-term profitability. Week-to-week capacity, no rolling, peak-season surcharges, local charges, and no-show or dead freight charges become archaic terms, and these tired phrases turn into non-issues when looking at long-term growth, efficiency, and profitability.

11. Vested Collaboration. Does your partner promote an open, sharing environment, or is it merely a transactional workplace? How much does it share with customers via social networks such as Twitter and Facebook, or through business-focused networks such as LinkedIn? Creating an atmosphere with an "open-source" mentality allows new ideas to be shared freely and creates an attractive corporate culture. Vested collaboration creates empathy, empathy ensures mutual understanding, and mutual understanding generates a collective beneficial result.

Planning for Optimal Results

If you take time to think critically about these often-ignored aspects of the collaboration process, your company will be equipped with the knowledge and trust it needs to achieve the best possible results far into the future. Consistency, preparation, collaboration, and common sense should be your guiding principles when negotiating with partners.

Successful partner organizations that build mutual empathy and vested collaboration need to establish a committed leadership structure — creating insight, foresight, and trust, not just oversight of annual negotiations. By consistently collaborating on budgets, forecasts, and modeling scenarios, and considering the above points, your organization will enjoy long-term fiscal success by being prepared for the best situations, and being able to forestall the worst. Empathy creates a collaborative atmosphere during the negotiation phase, and charts a course for a lasting, mutually beneficial business platform.