This week we had a high-level review from our carrier members. The overwhelming trend from all carriers is the increased demand for their services. As I have noted in past posts, capacity is shrinking in the market, the economy is not anywhere close to full capacity, and the usual lull during the summer is showing increased signs of activity versus the reverse tendency in the past. As this demand increases, the freight business will start hearing the “shipper of choice” initiative resurface from the 2018 era.
What does “shipper of choice” look like from my view in the cheap seats? Let me dissect this from an analyst’s point of view, versus a trucker, shipper, or receiver view.
The main theme for the immediate future will be “load choice” for the carrier, where the rubber meets the road. We negotiate contracts, rates, delivery, and terms in the boardrooms, but, when capacity reduces, those load choices are made on the operations floor every day. The shipper of choice should consider:
Drivers – Drivers prefer drop and hook, not drop (wait) and hook! Drivers want to have an easy pick up and delivery process, to include digital bill of ladings and proof of delivery documents to streamline and expedite the process. Both shippers and receivers have safe and clean facilities for drivers to use if needed. Just plain dock worker courtesy goes a long way. Remember, these drivers work by the hour and get paid by the mile so the delay time influences pay and thus their load choice from individual shippers.
Trailers – Carriers will continue to participate in offering trailers for efficiency in the supply chain. The challenge becomes the shipper that chooses to use these trailers for warehouse space, thus tying up trailers that are meant to roll, not to sit. Again, time is the most critical attribute of keeping these trailers rolling. The rising metric will be revenue per trailer per week to help monitor the effectiveness of each trailer, and each trailer pool, and each shipper that has those trailer pools.
Commitments – The negation between shippers and carriers has some critical components where rate, load commitments, and service (on-time delivery) play a large roll. Two things become evident to me, 1) clear sight of the agreed upon daily/weekly commitment levels inside the carrier network and what levers are available when those shipper commitments exceed the agreed upon level? Is there an agreement where option pricing tied to a comparable market rate when commitments are exceeded to take of a shipper’s overflow loads? 2) during 2018 high demand market, carriers accepted more loads than their commitments, and thus affected the on-time delivery for all loads. That development meant service levels reduced, but shippers needed the capacity and sidelined the service metric. Unfortunately, when capacity turned around, those reduced service levels were leveraged against carriers during the negotiations. Let us measure on-time performance to the volume committed in addition to the volume taken.
Payment – 70% of the carrier’s expenses are paid every eight days! Cash is king with any business so move terms to at least 30 days minimum. With further review, I would tell you 98% of the carriers’ costs are paid in 30 days. Thus, those shippers that move to +30 days will be the outlier when loads are picked in a high-demand market.
There are many strategic alliances that work well in a complicated supply chain. Those best practices are immensely important going into the next six quarters of high demand for truck, trailer, and driver capacity.