Commentary: Optimization crucial in collaborative transportation procurement

Chainalytics Vice President of Transportation Kevin Zweier explained that collaborative transportation is a useful strategy, provided shippers put in the homework before and after bid events.    With more than 100,000 freight carriers operating in North America, sophisticated shippers long ago realized the only way to successfully and efficiently procure transportation was by hosting regular bidding events.
   A natural extension of that is to partner with other shippers who have similar needs and engage in collaborative shipping procurement, where carriers can save time and bid for multiple contracts at the same time while identifying synergies that could reduce their costs and the costs of one or more shippers.
   Launching a successful collaborative shipping event requires a much broader lens than the “aggregate more spend and they will come” philosophy. That’s because pure economies of scale models are only predictable in commodities markets, but the transportation industry is based on relationships, and handshake deals still have meaning.
   Because carriers are rarely obligated to accept loads, aggressively seeking the lowest rate is almost never the best strategy for shippers. The goal of collaborative shipping is to match shippers with carriers on lanes that are mutually beneficial to both parties. More participants up the odds of producing lucrative and efficient relationships for everybody, but also increase the complexity of managing the process.

   The right partners make all the difference. A collaborative shipping event shouldn’t be a free for all – it has to have a focus in order to attract the best bids and cooperation from carriers. The most important thing is make sure to bring together networks that make sense and share similarities. Make sure that participants fully understand the focus of the event; if you are procuring liquid bulk, it doesn’t make sense to invite shippers who only have dry van needs or carriers that only have flatbed equipment.
   Geography is also an important consideration. In addition to national carriers with a broad footprint, including regional carriers is always a good idea as they often provide valuable and cost-effective service. However, you have to make sure the shipper participants have enough freight in those regions to be of interest to the bidders. If one shipper is only in the east and another shipper is only in the west, there is not going to be much synergy possible across the networks. This tends to be more problematic in places like Europe, but it is also important to bring together the right lanes in North America. Finally, only invite shippers that have the authority to issue and honor contracts and the execution capabilities to be able to tender the freight to awarded carriers.
   
   Avoid miscommunication at every step. Collaborative shipping events are action-based, where real transportation needs are being bid on and contracts are expected to be written when there is a match. When the event starts, it’s really too late for shippers to begin figuring out the exact nature of what they need and what their networks should look like. This is the homework that must be done prior to the event if it is to be successful, and even one participant that is not adequately prepared can stymie the event for others.
   It is vital for the event organizer to communicate to both shippers and carriers how to prepare for the event and keep the dialogue open before, during, and after the event. A web-based sourcing application is typically used to manage communication with carriers, but for shippers, the communication has to be more personal and direct. Data security is also an extremely important aspect of communication after the event to ensure that shippers have access to their own bids without seeing information intended for other companies.

   Network visibility and sharing. Shippers can only receive meaningful bids on lanes where they can provide all the information that carriers need to quote realistic rates. Point of origin and destination geographies are vital to know, but only the first step. Specific equipment needs, time in transit restrictions, and even specialized language skills for drivers are all facets of a lane that can affect bids – so they must be both known and communicated efficiently.
   Lack of full visibility is the biggest barrier to obtaining contracts that can be filled as agreed upon, but the other extreme is also a danger to efficiency. Providing too much information bogs down carriers and forces them to search for the key details and can stand in the way of optimal bidding. The best results are achieved when shippers know what information to supply and what should wait until ship dates draw near.

   Know the market. A very real danger of selecting the wrong partners for collaborative shipping is including companies that are not serious and primarily want to receive multiple bids as a means of benchmarking the market. The problem with this mentality is that it lacks the intelligence to weed out the low “paper rates” carriers may submit for lanes that they may or may not be able to service. Selecting the lowest bidder can land shippers in a lurch if the carrier is unable, or unwilling, to provide the capacity when the rubber meets to road.
   It is much better to enter collaborative procurement armed with market intelligence so that these unrealistic bids can be identified. Good intelligence goes even further than benchmarking, and shippers that understand which lanes are tight and which have extra capacity can analyze where they should leverage aggressive bargaining postures versus where there is little room for negotiation.

   Crunching the numbers. Getting the best results for all stakeholders is highly dependent upon choosing the right software and assembling the right team. There are many sourcing optimization software tools available, and what makes the biggest impact on achieving great outcomes is the quality of optimization engine. The sheer volume of carriers, bids, and business rules and constraints in sizeable collaborative shipping events is generally best left to tools engineered specifically for transportation.
   Once the calculations have been completed, they should be interpreted by someone with a strong background in both analytics and transportation. Experience in the field of collaborative bidding and procurement makes a significant difference in making the most of the complex data that these events produce and leads to more and better transportation contracts.
   As more and more shippers look for ways to further optimize transportation, collaborative shipping is gaining traction in the market. The most successful events share a combination of filtering for the best partners and rigorously managing event organization and data analysis.