Strong Relationships Net Long-Term Value
Q: From your perspective as a sourcing technology provider, what trends and challenges do you anticipate shippers will encounter in 2010?
Wilson: 2010 will be an interesting year for shippers and carriers alike. Some reports show that spot rates have been rising since last fall, and most analysts believe they will continue to rise as the year progresses and the economy begins to right itself. We anticipate that, for many shippers, the pendulum will swing back in the carriers’ favor, as carrier bankruptcies and forced capacity reductions create real capacity shortages that drive higher rates across all modes.
Those shippers who took every dollar and cent of savings at the trough of price points last year will pay more dearly in late 2010 and beyond than shippers who worked with their carriers to get through the tough times. And they will pay dearly not just in rates, mind you, but in capacity commitments, service levels, and loyalty. This is a cycle that resets itself every few years, and shippers and carriers alike must understand that strong relationships can provide more long-term value than a few cents per mile.
Q: What is your advice to shippers who are trying to balance corporate financial goals with meeting customers’ service and on-time delivery expectations as rates rise and capacity gets tight?
Wilson: Strong shipper-carrier relationships and strategic negotiations are not mutually exclusive. Transportation organizations have a fiscal responsibility to their corporations, just as they have a responsibility to maintain or improve service quality to customers and partners. Carriers understand this, and they will understand a shipper’s desire to reduce costs where it makes sense, as long as there is a benefit in return.
This is where strategic sourcing—not a bidding event, reverse auction, or winner-takes-all approach to negotiations—can make a difference. Shippers must encourage their carriers to act strategically, and provide the tools they need to do so.
First, show your carriers how they can benefit by introducing them to new lanes and shipment volumes within your network. Encourage them to think creatively about how additional volume on existing lanes, or showing you how to make your freight more carrier-friendly, can increase efficiency and reduce their operating costs, passing some of those savings along to you.
Next, monitor your execution diligently to ensure compliance to contracted rates, capacity commitments, accessorials, and other factors that can influence your transportation costs. If you can identify when, where, and—most importantly—why you are deviating from plan, you can take corrective action to fix carrier selection or invoicing problems quickly, or reset the plan based on new volume forecasts.