Executive Summary: Transportation Procurement Benchmark Study: Rate Fixation Strikes Back

W elcome to our fourth annual transportation procurement benchmark report. American Shipper, in partnership with the Council of Supply Chain Management Professionals (CSCMP) and the Retail Industry Leaders Association (RILA), surveyed roughly 275 transportation buyers and sellers on procurement practices, processes, technologies and results. 
  
Winners. Each American Shipper benchmarking study seeks to highlight best practices by parsing companies who deliver excellent results — “winners” —from the average and sub-par performers.
   In order to create a clearer comparison between winners and the average performers, this year’s study has limited the “winners” category to shippers exclusively. Other winners’ criteria are as follows:

• Keep contract freight rates equal to or lower than 2011 levels.
• Incorporate environmental sustainability and other considerations into the bid analysis process.
• Implement awarded contracts within two months.

   Based on these criteria, winners account for 30 total respondents with a heavy representation (75 percent) from the manufacturing community. Retailers and wholesalers make up the remaining quarter of this category.
  
Transportation Spend & Contract Rates. Roughly three-quarters of survey respondents report that transportation spend has increased in 2012, although the pace has declined slightly from last year’s increases. This shows that transportation is still on the rise, despite concerns about the economic recovery.
   Overall, contract freight rates have also increased since 2011, but the pace here has slowed noticeably. Nearly half of respondents report that their rates have remained unchanged, or even decreased, compared to 2011. Last year only 29 percent of survey respondents reported no increase.  This speaks to the need for carriers to increase base revenue levels, which have largely failed to recover from pre-2009 benchmarks.
   Negotiation timeframes remained roughly the same as 2011. Nearly three-quarters of shippers conclude  their negotiations within three months of starting, while winners are considerably more likely to wrap up their negotiations within two months’ time. 
   The average shipper’s procurement process includes 2.2 rounds of bidding. Results for the winners category were exactly the same, which is surprising considering how much faster winners conclude the negotiation process.
   In general, transportation buyers are taking more time to implement their awarded bids than in 2011. In particular, more buyers are seeing their bid processes slip from two months to three, likely due to the increasing complexity of supply chains as shippers do business in more markets and use more modes of transportation to connect them. 
  
Assessing Bids & Timing Procurement Events. After a short period where it appeared rates weren’t necessarily the top priority for respondents, price is king yet again. Survey respondents were asked to select the single most important aspect of a carrier’s bid from a very short list of options — price, service and risk — and the majority singled out price as the key
   consideration.
   This suggests that, in general terms, capacity is not hard to come by. Typically shippers will focus on service when the industry becomes a seller’s market. This is clearly not the case in 2012. 
   This year’s survey asked respondents to go a level deeper about how they consider tradeoffs between price and service. Winners remain generally more focused on service, and particularly on-time performance.
   No respondents selected environmental sustainability as the driving force in their bid analysis. However, many shippers are incorporating these requirements into the bid process at some level. Interestingly, systems-based companies are considerably more likely to incorporate environmental sustainability in the procurement process. 
   Winners time their procurement events, for the most part, in line with buying seasons associated with their markets. However, winners also leave the door open to bid out their transportation when market conditions change for better or worse. 
   Winners are half as likely to schedule bids based only on when resources are available, which suggests winners make transportation procurement an organizational planning priority. 
   Similarly, 3PLs participate in traditional buying seasons, but they are noticeably more likely to go to market when conditions favor them. Not surprisingly, 3PLs are opportunistic buyers of transportation services. 
   Manual, spreadsheet-based procurement processes remain the most prevalent among transportation buyers, with 42 percent of the total. Another 25 percent of respondents use a hybrid platform, which presumably means they are using spreadsheets for at least one mode and/or geography. Only 23 percent of buyers are using a completely systems-based approach of some kind. Overall, this picture is nearly identical to what was illustrated in last year’s report, perhaps indicating that shippers were in a holding pattern with regards to investment in procurement systems the past year. 
   Large shippers have far more reasons to automate the procurement process than their small and midsized peers. And they should. Large companies have more freight, more origin/destination pairs, more LSPs, and potentially more modes to manage. Procurement technology is in large part a tool to manage network complexity, so it’s fitting that those with more complex supply chains would find this technology more useful. 
   More than half of shippers manage their contracts without the benefit of a system. Another 20 percent characterize their platform as a hybrid or mix of approaches. While this is not surprising, it is concerning. Shippers and carriers invest a tremendous amount of time, money and other resources in the procurement process but this exercise is only worthwhile if a company can execute on the agreements.