Rediscovering The Classics, Volume II: Committing to Core Carriers
Romancing lowboys and spread-axle hotshots might not sound appealing, but developing Unconditional relationships with core carriers REAPS long-term advantages.
Core carrier programs capitalize on matching a ratio of trucking partners to shipment volumes, based on pre-determined service and pricing coefficients.
When the trucking market is squeezed, businesses use these partnerships to find capacity; when demand is down, a close-knit network of carriers helps rein in costs and maintain service expectations. Regardless of market flux, businesses leverage core carrier programs to consolidate and strengthen transportation operations while harnessing greater control over freight spend and vendor compliance.
Maintaining a stable of preferred carriers for specific lanes, points of origin, and niche service capabilities is an essential best practice that requires consistent evaluation. Trucking companies frequently look for new business and shippers regularly measure carrier performance and competitiveness to find the best partners.
Building long-term relationships with proven service providers allows businesses to mediate market and economic cycles, negotiate better rates, enhance flexibility, and create a cohesive and robust transportation network that drives value to the enterprise and its customers.
Helping companies build and manage core carrier programs is what Lakeshore Logistics does. The Broadview Heights, Ohio-based transportation management company started up operations in 2002 to help small- and medium-sized businesses manage the complexity of their transportation networks.
"There was a huge need for supply chain management capabilities that addressed small company needs," says Ed Caruso, president and co-owner/founder of Lakeshore Logistics. As one of its primary functions, the transportation management company helps customers leverage core carrier programs to reduce costs and improve service.
"Customers generally come to us with a compelling event," says Caruso. "They may wonder why they pay $1.4 million in annual transportation costs. Or, business is booming and volumes are up, so they're looking to be more efficient to support new growth. Perhaps one of their carriers went out of business."
Kichler Lighting experienced its compelling event in 2002, when the freight bill audit company that was helping manage some of its transportation requirements went out of business, leaving carriers unpaid. So the company began working with Lakeshore Logistics to manage its transportation.
As a designer, manufacturer, marketer, and distributor of decorative light fixtures, lamps, and home accessories, Cleveland-based Kichler has always used outside help to manage its freight network. It sells to a variety of customers, including big box retailers, electrical distributors, retail lighting stores, catalog houses, and landscape contractors.
Kichler relies on Lakeshore Logistics to gather and review a laundry list of metrics, gauge performance, maintain data, and offer assistance when negotiating with carriers. Dan Speck, Kichler's director of distribution, keeps a direct line of communication with his fleet of core carriers.
The company currently uses 10 preferred trucking companies, based on origins, service lanes, and "what they do well and what they don't do well," according to Speck.
"Our core carriers are an extension of Kichler," he says. "Because they deliver the ball the last yard they leave an impression with our customers. They are a reflection of our company."
Accordingly, they are held to certain standards. Having a core carrier program in place helps Kichler manage requirements against actual performance.
Holding core carriers to expectations is a self-regulating process, adds Speck: "If one month passes and a partner doesn't meet performance metrics it raises an eyebrow; if it happens over two months I'll talk with the carrier; and if it continues for three months, I'll ask for a corrective action plan."
Demanding this level of commitment, and building these types of relationships, compels carriers to go the last mile in making sure they are performing up to par, and often beyond what is expected.
"I maintain consistent relationships with my carriers and their reps; there isn't a great deal of change," says Speck. "If a problem arises, they will go out of their way to meet with my customers to find out what's going on.
"I could find less-expensive carriers in every lane, but they probably wouldn't provide the level of service and reliability we demand," he adds. "We have to pair our needs with their abilities."
Operating a core carrier program can greatly simplify perceived complexity, or massage lack of visibility, merely by eliminating options. "If Kichler has a shipment moving to Texas, it can only be on one of two carriers. A core carrier program limits choices—half a dozen versus infinity," Caruso explains.
This level of information and communication, however basic, permeates the company, breaks down walls, and foments collaboration and efficiency. Everyone—from marketing and sales to customer service—knows which carrier is delivering product in a specific lane or area.
Working with a group of known carriers and agreed-upon freight rates can help sales reps when they are breaking out costs for customers. The same consistency applies to freight bill auditing.
"If a company is working with multiple carriers and multiple discounts, rate base levels, and rules of engagement, it will not be pricing accurately," says Caruso. "The time it takes to gather and calculate the right information is prohibitive."
Pricing inconsistencies may be frustrating for customers, but poor service is often a test of patience, with terminal consequences. When different carriers transport product to the same customer, a standard of expectation cannot be set. The end user's needs become muddled among different service providers.
As an example, customers experience major problems if deliveries aren't consistent, and shipments are coming into DCs at varying times.
"If a company recently scaled back warehouse labor to reduce costs, then schedules staff to receive expected shipments, they will not be happy with inconsistent deliveries," says Caruso. "A core carrier program manages to this minute level of detail."
Kichler can appreciate the fact that Lakeshore Logistics has the bandwidth to parse out the singular expectations of the company's many customers—and those same end users value the reliability and consistency of Kichler's carrier partners.
"Consistency and performance means money to our customers," says Speck. "That predictive knowledge allows them to staff up accordingly, and notify customers when shipments will arrive."
Given the seminal importance of core carrier programs, especially as sensitivity to transportation costs intensifies, it's imperative that companies consider, or reconsider, their trucking options. Corporate bureaucracy often obviates the importance of transportation and the need to cull and coordinate carriers to be more efficient.
"Some companies don't appreciate the value of transportation and logistics," says Caruso. "Either they don't know the value or the entire company doesn't embrace these functions."
Competition for business is ongoing, as carriers are always on the make. "They're on the outside looking in and they want your business; they want to be your partner," he explains. "A killer price can quickly pull business from another carrier."
Many companies have similarly augmented their reliance on brokers to find carriers that best meet their needs. When capacity is tight, shippers leverage freight brokers and their depth of resources and visibility to find space. Fluctuating fuel surcharges and transportation costs are increasing pressure on companies to save money, and driving them to keep shopping around for more competitive rates.
Chasing price discounts creates a dangerous cycle that is difficult to break and has dire repercussions—especially when service discrepancies leave enduring scars and carriers are bound to hold grudges when freight volumes pick up.
This continuous salesmanship on the part of carriers, and shippers' failure to appreciate the true value of transportation and the merits of long-standing partnerships, are obstacles to change.
"Change is difficult for organizations and virtually impossible in logistics," observes Caruso.
A commitment to building core carrier alliances, however, can educe change. For example, businesses that negotiate competitive rates with their partner carriers, and hold vendors in compliance with inbound routing guides, can wield far greater control over transportation decision-making deeper in the supply chain, thereby unbundling transportation costs, reducing spend, and increasing visibility.
Alternatively, core carrier programs can also help companies mediate change, particularly when it comes to demand and supply volatility.
"When capacity got tight on the LTL side, we were not greatly affected, largely because of our core carrier partners," says Speck.
One fundamental benefit of core carrier programs is that setting expectations and holding partners to agreed-upon service requirements creates demand within the network. This competition forces carriers to compete for status.
Kichler uses two carriers—one primary and one secondary option—to cover each lane. "I split the business between two national LTL carriers, and I always have the option to steer more business one way or the other. The carriers know that," explains Speck.
Building competition into the program drives economy as well. For example, Kichler can benchmark carrier rates against each other and negotiate accordingly.
"Even though they are our preferred partners it doesn't mean we don't negotiate," says Speck. "There are trade-offs."
In fact, this mutual understanding between Kichler and its carrier partners underpins more productive negotiations.
"If we marry the needs of both companies together, where can we go? It's much more difficult to ask this question when you are competing for business and new carriers all the time," Speck says.
"The trick is finding carriers that want to serve a lane," he adds. "When you can give them what they want, and they can meet our requirements with good service and rates, that's the advantage."
Contrary to the concept, core carrier programs are not without flux. As an example, a partner recently told Speck it didn't want to honor a predetermined fuel surcharge agreement—and it wouldn't budge. So Kichler replaced it with another trucking company.
"Over the last six months and in the next six months, I will probably drop two carriers and add three to my core group. It's not a constant churn, but if they give me a reason to look elsewhere I will," says Speck.
These occasions are anomalies, especially in today's market where carriers have little leverage to be selective. Often, the idea of being part of a select group of trucking partners is incentive enough to stand out among the crowd. In this sense, conformity forces proaction.
"Carriers know their on-time performance thresholds and if they think a move will be problematic, they notify us before it happens," says Caruso.
The routine of using a core group of carriers ultimately makes for better service and more competitive pricing. When everything else is variable, an unwavering commitment to building long-term carrier partnerships can have a stabilizing and sustaining influence on the enterprise.
With continuous oversight and communication, shippers such as Kichler are reinventing an old routine to optimize transportation management.
Getting Back to Basics: Selecting Core Carriers
Maintaining a fleet of core carriers is as fundamental as transportation management gets. But relying on third-party partners to meet varying business needs as well as customer expectations is not without its risks. Companies that are diligent in vetting, then evaluating, carriers regularly can reap their core rewards. Here are six tips to help you choose the right core carriers.
- Look at your business and break out your transportation needsin terms of geographic scope and service requirements—- regional LTL versus national LTL, as an example. Make sure the carriers you consider have sufficient assets, labor, and capacity to match your requirements, especially during peak demand periods. Consider a mix of carriers with different capabilities and assets that cover all your service lanes. Having secondary options can create additional flexibility, drive internal competition, and serve as a benchmark for acceptable service and pricing.
- Perform a background checkto make sure prospective carriers are financially stable and reinvesting in the business to maintain the quality equipment, current technologies, and well-trained drivers necessary to service your needs. Consider union status, and whether labor negotiations could impact operations. Ask for customer references, specifically shippers with similar business profiles.
- Invite key customers into the vetting processto align their demands and experiences with your own requirements. Carrier partners are your front-line sales-force and customer service representatives so they ultimately reflect your brand—good or bad.
- Check the carrier's quality service metrics,including performance criteria such as operating and claims ratio, and on-time delivery. If you find discrepancies, ask questions.
- Make sure a prospective carrier has the technology to support your businessin terms of online shipment tracking and visibility, e-mail alerts, Web pricing, billing, and claims reporting.
- Look for a carrier that is willing to grow with your businessand shows readiness and commitment to collaborate. Find examples where it has helped other customers manage exceptions, seek solutions, and drive innovation. The nature of core carrier partnerships does not preclude negotiating terms, so prospective partners should be open to engagement.