Trucking Procurement Practices Shifting Gear

Editor’s Note: Ken Cottrill is Global Communications Consultant at MIT CTL. FrieghtLab is launching a research initiative to look at how trucking procurement practices are changing and the implications for supply chains. If you are interested in joining the initiative or want more information, please contact Dr. Chris Caplice, Director of FreightLab, at [email protected].

From a shipper's perspective, 2018 was a tough year for procuring truckload transportation, as carriers gained the upper negotiating hand in a capacity-starved market. The experience required many shippers to become more amenable to carriers' service needs – but will this shift continue as capacity shortages ease and the balance of power in the truckload market moves back towards the buyer?

The question, and many others was discussed during the Innovation in Transportation Roundtable: Disrupting the Dominant Design of Procurement and Management roundtable, February 12 to 13, 2019, organized by MIT CTL's FrieghtLab. At the event, some 40 organizations including carriers, logistics service providers and shippers, explored key industry issues such as the effectiveness of transportation contracts, the emergence of digital freight matching and the challenges of big data analytics in trucking.

Not just kumbaya

Buyers who go out of their way to be collaborative are “enlightened shippers” suggested one roundtable attendee. Typically, they work with carriers to strike a mutually acceptable balance between market capacity demands, service needs, and freight rates.

Such a player eschews the “I've got a hammer and you are the nail” school of negotiation. Rather, the buyer pays attention to service demands on the carrier side of the table. An Example is the need to ensure that drivers receive enough hours and get home regularly.

Of course, procuring truck capacity is a two-way street; some carriers are more interested in exploiting the market's ebb and flow for profit than in engendering reciprocity in contract negotiations with shippers.

And as an attendee pointed out, an enlightened attitude towards contracting with trucking companies has little to do with creating “warm and fuzzy” affiliations. The aim is to “create measurable value for both parties.” That is one reason why such relationships are process-driven.

Gaining preferred status

Several shippers at the roundtable described how they have nurtured mutually beneficial relationships with carriers.

A large-volume shipper takes pains to establish deep, strategic relationships with key carriers and holds regular talks “to find out how they can grow with us” and how big they want to become in terms of volume. Another company encourages managers throughout its organization to develop collaborative relationships with their counterparts in the carrier community, to avoid losing these connections when people leave respective enterprises.

One company described how refocusing its efforts to develop more constructive relationships with carriers helped to reduce its reliance on the spot market. “We had to change the way we worked and change the engagement to get people to own relationships.” The effort also served to highlight how technology – the company is upgrading its transportation management system – can deliver service improvements, but is limited when it comes to developing a rapport with service providers. “We are only as good as the relationship on the other end of the phone,” said the attendee.

The ultimate goal is become a “shipper of choice” in the market; a company that carriers want to do business with, and hence is more likely to secure the capacity it needs than shippers with a reputation for being bothersome trading partners.

Achieving the accolade need not be onerous. A shipper at the roundtable described how the company makes a special effort to gain feedback from drivers. In addition to improving working relationships, the exercise has yielded potential cost savings. For example, drivers have provided new insights into delays at cargo handling facilities that the shipper has been able to address.

The same shipper has built parking bays at selected facilities. This is a significant benefit for drivers, because finding a place to park in order to rest and comply with hours of service regulations can be difficult. It's the kind of concession that helps to establish a shipper as a preferred customer, and it is notable that carrier churn rates in this company's freight network are negligible.

Enlightenment unavoidable?

There was some skepticism at the event that the enlightened attitudes engendered by last year's seller's market will persist on the same scale as the market turns. One attendee noted that the concept of being “carrier-friendly” often seems to be learned and then forgotten depending on the market cycle for transportation.

Also, some problems that carriers find especially irksome have endured. An example is expecting drivers to wait for hours at freight facilities because a load is not available, or some other operational glitch has arisen. This is particularly problematical for independent owner/operators who only earn when they are moving cargo. As a roundtable attendee pointed out, “the small guy will not haul your freight if you keep him waiting.”

In the future, shippers are likely to find that it becomes costlier to ignore such problems. Rating systems for truck facilities are on the rise, and as a participant at the roundtable noted, truck drivers are avid users of social media and use these channels to alert the driver community to substandard service levels.

Perhaps a more enlightened attitude towards procuring truck capacity will become a part of the cost of doing business.

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