Transportation is often referred to as a “perfect market”—that is, no single party controls the entire market enough to affect rates. Instead, the market fluctuates based on supply and demand.
If equipment is abundant and there is less freight available, rates go down; if capacity is tight and shipment volumes are greater, prices go up.
As predicted, now more than ever shippers are faced with constrained capacity issues due to truck supply running at close to 100 percent utilization. This means that recent freight growth in particular industry sectors, productivity-draining changes in government regulations, and inclement weather have only added additional pressure to an already tight marketplace.
Taking initiatives to become a shipper of choice, by making freight more attractive, allows shippers to evaluate current transportation practices and determine the areas in which there may be room for change in order to attract more carriers to their business. Below are five examples that carriers commonly refer to as aspects that can influence their desire to work with particular shippers.
1) DETENTION/DELAYS ON MULTIDROP SHIPMENTS
About 80 percent of drivers have reported that detention impacted their ability to meet federal Hours of Service (HOS) safety requirements, and about 65 percent of drivers reported they lost revenue either because detention time caused a missed opportunity to secure another load, or because their HOS expired and they had to return later, requiring them to pay fees to the shipper for a “late delivery”
(Source: United States Government Accountability Office. “Commercial Motor Carriers: More Could Be Done to Determine Impact of Excessive Loading and Unloading Wait times on Hours of Service Violations.” January 2011)
Solution: Shippers can establish processes so their facilities do not overschedule appointments and maintain adequate staff and equipment to handle the number of trucks scheduled. Shippers can also use a TMS to preset delivery appointments, with standardized guidelines and operating procedures for all carriers to follow.
2) TRANSPORTATION CLAIMS RELATED TO LOSS, DAMAGE AND TEMPERATURE ISSUES
An unsecured or improperly secured load can shift in transit, causing damage to the cargo and/or vehicle. When refrigeration requirements are followed properly the ensuing damage can result in heavy losses to all parties involved.
Solution: Shippers can analyze information about the root cause of claims, identifying whether the cause is the carrier, packaging, product design, a distribution center, a customer or improper explanation of refrigeration requirements. Some other tips are to adequately label freight that requires special handling, implement the usage of proper dunnage or straps and bands, and ensure that temperature monitoring equipment is being properly utilized.
3) MANY CHANGE ORDER/SHORT LEAD TIMES
Research shows that loads with shorter lead times have a much higher level of tender rejections (Caldwell, Erik and Bryan Fisher. “Impact of Lead Time on Truckload Transportation Rates.”) and carriers are least likely to reject loads with lead times longer than two days.
Solution: Increasing the average lead time to between two and five days can markedly reduce transportation costs for a shipper; also, some shippers can forecast base volume in lanes that are highly repetitive. This information can be used to commit to loads in advance so fewer loads will need to be tendered close to the pickup date at a higher cost.
4) FUEL SURCHARGES
Shippers know that carriers cannot absorb significant changes in fuel costs and remain profitable, but both parties may not agree on what constitutes a “fair” fuel surcharge. In addition, carriers may underperform in load acceptance, driving up the shipper’s costs as they move down the routing guide, or leave the shipper for a more profitable customer.
Solution: Understand the components of a fuel surcharge—the index, the peg and the escalator—and how each of them influences costs.
5) LONG FREIGHT PAYMENT TERMS/MANUAL BILLING
Carrier margins are very tight, and many experience cash flow challenges as they wait for payments for work performed.
Solution: Shippers can make it easier for carriers to submit the necessary paperwork to obtain payment and decrease the time between receipt of the carrier’s invoice and the payment for hauled shipments.
Following these recommendations can have a very positive effect on the overall attractiveness of a shipper’s freight. When procedures are implemented and managed properly, companies can help alleviate some of the pressures felt in tight transportation markets. While this won’t necessarily change market dynamics, it can certainly make it easier for shippers to attract much needed capacity.