The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
In an epic Seinfeld episode, Frank Costanza, the father of Jerry’s buddy George, gets fed up with the commercialization of the holidays and adopts a new celebration, “Festivus for the rest of us.” As he prepares to engage in one of the holiday’s primary rituals, the airing of grievances, Frank proclaims, “I’ve got a lot of problems with you people!”
Frank’s words came to me as I reflected on the current state of relationships among shippers, truckers and brokers. While the issues are not new, the “bust to boom” pandemic-driven market fluctuations in recent months have amplified the concerns. It’s time we all paid attention.
While there is plenty of talk about the desire to be a shipper or trucker of choice, many do not walk the talk. They are stuck in an old school, transactional way of thinking about the shipper-carrier dynamic. Short-term thinking contributes to an environment of distrust, frustration, and inefficiency up and down the supply chain.
In contrast, I have seen time and time again the positive benefits for shippers and truckers who treat one another with transparency and respect and who are operationally aligned, especially in times of extreme excess or tight capacity, such as those we’ve experienced over the past six months. At the end of the day, the shipper who behaves fairly will get the trucks in tight times. And the trucker who behaves fairly will get the work in lean times.
In a bow to Frank Costanza, I’d like to air common grievances in our industry and means to avoid them.
Don’t wait for a cargo claim
I’m constantly amazed at how few shippers provide clear guidance to truckers regarding cargo value. Equally shocking is how few truckers publish and/or disclose their liability limits to shippers. This lack of transparency on both sides, which typically receives attention only after cargo damage occurs, is a recipe for disaster.
As part of their standard practices, truckers should inform shippers of their cargo liability limits. Similarly, shippers should declare the actual maximum value of their cargo to their truckers. If open, transparent dialogue occurs, the carrier can procure sufficient insurance to cover the declared value, or the shipper can make alternate insurance arrangements.
Create RFQs that go beyond price
A shipper who issues a blind RFQ that addresses only price is acknowledging that he does not value the quality of service. When I see an RFQ with cost as the only criteria, my antenna goes up, and my interest in securing the work goes down. If I win a bid because I am $5 cheaper, I can count on losing out next time to someone who is $5 cheaper than me. It’s impossible to build brand loyalty and long-term relationships this way.
Big-picture shippers, on the other hand, will perform a qualitative analysis ahead of the RFQ, limiting participants to those who meet performance and quality criteria, including proven investments in people, fleet, safety, and technology. By clarifying expectations, they increase the odds of attracting a quality carrier. The trucker can participate with more confidence knowing that the shipper is serious about quality and that he will be bidding against a group of similarly vetted carriers.
Shippers should make exceptions to the RFQ process for best-in-class carriers. Let’s say a shipper issues a RFQ annually. Consider offering a “bonus year” to top carriers that protects their lanes in recognition of stellar service. This does not need to be an everyday practice, but in the correct circumstance it sends a powerful message of partnership to deserving carriers.
Prioritize continuous improvement
A common adage in our industry, “You’re only as good as your last load,” speaks to an unfortunate mindset. A carrier could execute 20,000 loads flawlessly, until one day when something goes wrong. In such situations, many shippers default to punishing the carrier, threatening to withhold future loads.
Enlightened shippers who cultivate relationships based on trust will insist on a full review, with root cause analysis and open dialogue. They want to do business with truckers who see themselves as trusted partners committed to continuous improvement. A trucker who allocates too much capacity to a punitive shipper risks being sidelined with insufficient time to redeploy trucks.
So many loads are tendered last minute and in panic mode. Sometimes, this is unavoidable. Many times, however, it’s the result of poor planning.
Operational alignment is at the foundation of a successful shipper-carrier relationship. Shippers will receive better service if they provide forecasts to their carriers. If the shipper sees a demand surge on the horizon, it may be difficult to provide sufficient capacity on short notice. On the other hand, with reasonable notice and a collaborative mindset, shippers and carriers can plan for upcoming capacity requirements.
Shippers and carriers should also establish key performance metrics and commit to periodic business reviews to resolve issues and look towards future opportunities.
Contract rates, spot rates……or “grey rates?”
Freight rates usually are described as “contract” or “spot.” Conventional wisdom tells us that contract rates are established by agreement for a period of time, while spot rates fluctuate with the market. These bright-line demarcations do not reflect reality, however. There exists a “grey rate market,” where contract rates exist but frequently are ignored. If the trucking market falls below agreed-upon rates, some shippers will renegotiate rates despite the contract. Similarly, when rates rise, some truckers will allocate capacity toward higher-paying work.
In late April and May, as COVID-19 was beating up the logistics sector, it seemed as if some shippers were issuing a “RFQ of the week” to catch falling rates. In turn, truckers made low-ball contract commitments based on short-term market trends. But conditions changed dramatically as spring wore on.
Where a relationship exists, shippers and carriers recognize that a rigid long-term contract might not survive the wild gyrations of the freight market. They find fair solutions as opposed to taking unfair advantage of their leverage at either end of the market cycle.
Just say no to lopsided contracts
Shippers put outrageous contract terms in front of truckers, and many truckers just sign the contract without review. A lopsided contract should be avoided. It’s a red flag to the beginning of a toxic relationship. Parties gain respect for one another as the result of a fair negotiation. Be especially aware of these egregious provisions:
- Excessive penalties for delays. Traffic, equipment, and human factors inevitably lead to delays. But it serves little purpose to punish a normally reliable carrier for a delay. If a trucker is frequently late, it’s probably time to review your internal processes and/or choice of carrier.
- Unlimited cargo liability. Look out for contracts that impose cargo liability on the trucker which is more than its insurance limits. Consistent with the first point in this article, the contract is the time to establish maximum exposures – not to establish uncapped liability.
- Making the broker responsible for the acts of the carrier. Contractually making a broker liable for the actions of its carrier is like making a travel agent accountable for a plane crash. Freight brokers are not involved in carrier operations and have a different role and duty in the supply chain.
- Unreasonable indemnification obligations. A party to a contract should be accountable for acts and omissions. But many contracts make a carrier liable for the acts of someone else, such as a third-party crane or forklift operator. There is no practical justification for provisions like these. A fair contract precedes a fair relationship.
From grievances to solutions
Up and down the supply chain, transparency is the best way to address one another’s grievances. Transparency is at the foundation of all excellent relationships. Open interchange benefits customers and the bottom line by facilitating our ability to successfully navigate challenges and capture opportunities.
A commitment to more transparent, intentional dealings is the key to our collective success. It is the one constant in 2020’s wildly fluctuating freight market.
Brian Fielkow is CEO of Houston-based Jetco Delivery and Executive Vice President of Montreal-based The GTI Group. He is co-author of Leading People Safely; How to Win on the Business Battlefield. Fielkow received the National Safety Council’s Distinguished Service to Safety Award, the council’s highest-level individual recognition.