Opinion: Shippers Face a Carriers’ Market

This Opinion piece appears in the July 26 print edition of Transport Topics. Click here to subscribe today.

By Ed Hildebrandt

Senior Vice President, Operations

ChemLogix LLC

The exodus of drivers during the economic downturn is creating a driver shortage as the economy begins to recover. Add to this escalating costs for carriers complying with new federal regulations for tractors, trailers and communications and you have a recipe for reduced capacity and higher prices.

We are seeing the return of the “suppliers’ ” market experienced in 2004 when the “new” hours-of-service regulations combined with rail and intermodal capacity reductions by the railroads created skyrocketing demand for trucks and increased freight costs.

Shippers who haven’t yet experienced any problems can expect them soon. So, how can they prepare for this new reduction in trucking capacity and minimize the effect of freight rate increases? They need to be proactive and to look at their relationships with carriers in a new light.

Shippers’ first step is to realize that they are in a competition for carrier resources with other companies operating in their markets. The way to win in this game is to make their freight more attractive to carriers. It’s time to identify and make changes in those areas that make freight less desirable to carriers.

If all that sounds more like a romance than a business deal, it’s not a bad attitude for shippers to develop, given present market realities. If you’re a shipper or a broker, the following to-do list is for you. If you’re a carrier, make sure your shippers know that this is the new reality:

• Pay on time. The fastest way to lose carrier support and interest is to be a slow payer. Shippers with internal freight-payment issues must work to resolve them or outsource freight pay.

• Establish an effective freight bill exception resolution process with carriers so issues can be addressed quickly and not end up as multiple balance dues. Multiple handling of freight bills drives up shipper costs and those of the carrier.

• Provide a minimum of two days lead time for pickups, giving carriers ample time to plan freight into their schedules.

• Be consistent and predictable. Last-minute change orders and short lead time orders are the most difficult for a carrier to respond to and least likely to be accepted.

• Don’t be known as “that shipper who routinely cancels and re-books orders.”

• Loosen up pickup-and-delivery windows. In a tight freight market, assigning specific pickup times with 30 minutes or less leeway makes freight more difficult to manage and less attractive. Carriers need flexibility to maximize the use of resources and enable them to serve as many shippers as possible.

• Don’t load trailers early in the day for next-day deliveries of fewer than 250 miles from your origin. Doing so eliminates the carrier’s ability to use this trailer on another load prior to yours.

• If possible, allow carriers to drop trailers for loading at the carrier’s convenience for longer-haul loads. This will enable the carrier to use a local driver to load and spot the trailer for later pickup by a longhaul or system driver.

• Don’t attempt to capture capacity by loading trailers in advance and delaying deliveries. Tying up carrier trailers for protracted periods of time even when you pay trailer spotting charges still limits the revenue opportunity for the carrier and may result in their not wanting your business.

• Manage freight cost increases on a lane-by-lane basis. Before agreeing to any price increases, understand how your current freight rates stack up in the market. Don’t merely accept an across-the-board increase. Benchmark freight rates to identify lanes that are in jeopardy for rate increases. Chances are that not all your rates will be subject to an increase. Use an outside company with significant market knowledge to assist in determining how your rates compare with those of other shippers. It is well worth the nominal cost of the service.

• Get to know core carrier lane densities and your lanes having the most opportunities for reload and/or round-trip potential. These lanes generally produce the lowest costs for the carrier and the most favorable rates for the shipper.

The capacity pendulum has already passed its apex. It’s time for shippers to get serious about establishing good relationships with carriers.

ChemLogix LLC, Blue Bell, Pa., is a provider of comprehensive chemical industry transportation management, technology and supply chain consulting services.