In today’s rate environment, many manufacturers and retailers believe they have solved their transportation problems because they’re getting high routing guide compliance and meeting their budgets. Is this the same false sense of security that accompanied the downturn in 2019 or do they have eliminated the problems in their network?
“Shippers are misinformed or unsure of what it means to be a ‘shipper of choice.’ Ultimately, this can lead to inefficiencies, cost overruns and service erosion over time.” – Gartner
- The larger swings in price and performance over the past 5 years have led many shippers (Manufacturers, retailers, and distributors) to reshape their strategies in a number of ways.
- This has resulted in false positives when reviewing strategies for their effectiveness.
- The gap between spot market (what a carrier/trucker/broker can get in the open market) and contract rates (what they’ve agreed to in advance during a shipper’s bid process) is currently about 20%. In actual dollars, it’s $2.06 vs. an all in contract rate of $2.54 on a national basis.
- The ~$0.50 gap has been about the same for the past 12 months even as both spot and contract rates have been coming down.
- Providers that failed a shipper in 2021 but have performed well in 2023 are playing the market, they haven’t had an epiphany.
- This has resulted in false positives when reviewing strategies for their effectiveness.
“Logistics leaders must strategically align with carriers and implement the programs, segmentation strategies and digital investments required to become a shipper of choice.” – Gartner
- Comparing your historical data to market comps is the best place to start
- Routing guide compliance, Acceptance at contracted rates, On-time service levels, meeting your budgets are the ultimate standards to measure by. But when the market is like this, they all rise creating a false positive.
- How did they perform when the market was bad vs. how they are performing now?
- Use this data to segment out your best providers – (Tier 1)
- The rest should be under scrutiny. Most shippers are overpaying these non Tier 1 carriers believing they’ve resolved the issue, thereby rewarding their earlier failure.
- Which providers stood out for bailing you out in the toughest days of freight storm? These providers serve a purpose in your network, but not necessarily in your routing guide. There will be plenty to choose from when prices go back up, any dollars spent now to protect them are wasted as they are opportunistic. . . but you do need them when the time comes.
“Strategic partnerships are rarely used as a driving force when creating shipper of choice initiatives, leading shippers to regrettably apply the same resources and methods for all carrier relationships.” – Gartner
- Shippers get hamstrung identifying new providers for their network.
- They are inundated with calls from new providers while trying to satisfy ALL of the carriers that had been in their network.
- Generally, they’re advised to adjust pricing the same across the board (Cut rates by 10% this year or only allow a 3% increase).
- They’ve been burned by testing the waters with new providers, especially when the market is going higher but often in easier times because they demand too low of pricing.
“Shippers often fail to consider technology to improve business outcomes when forming their strategic shipper of choice initiatives. Leaving carriers to make unilateral technology investments without strategic guidance deters long-term partnerships and diminishes relationships.” – Gartner
- Technology exists to test carriers at scale before you allow them into your network.
- This same technology allows you to better understand market pricing for your unique freight.
- Adjust pricing in real time with your Tier 1 providers so that they’re always in a position to keep their drivers moving.
Effectively managing your freight to be a shipper of choice is about ensuring that your pricing is always in market.
This blog was written by Mike Nervick. Mike has 20+ years supply chain & logistics expertise. He founded AFN freight brokerage, grew it to 200 employees & successfully exited to build his next dream solution: Sleek Technologies.
