As I wrote about several weeks ago, various data points related to the trucking industry suggest we’re in a shipper’s market — that is, there is excess trucking capacity relative to demand, which is putting downward pressure on rates. How are shippers responding to this market environment?
“Many shippers have effectively elected to toss to the wayside any talk of partnerships, relationships, cooperation, collaboration, etc.,” according to a recent report by Stifel Inc. “Shippers are under enormous pressure to cut transportation costs and seem not to be satisfied with the massive fuel surcharge reductions racked up over the past year and a half.”
Smart shippers, however, are not following the masses; they are taking a longer-term view of the transportation market, as Matthew Menner, Senior Vice President at Transplace, discussed in a recent episode of Talking Logistics:
We see most of our customers taking the long view. They know exactly how fickle this industry is and how quickly it can turn. Eighteen months ago we were in a carrier’s market. Carriers were reporting the best earnings, the best operating ratios, and the best top-line revenue growth they had seen in a decade. So the tables can turn quickly.
While smart shippers are trying to do a little bit of clawback to realign back to what is defined as current competitive rates based on their freight network and freight characteristics, they are not seeing this as an opportunity to take mass gains back and potentially suffer the long-term consequences of such actions.
Smart carriers are also taking a more sophisticated and long-term view of the market, as Matthew explained:
Carriers have applied a level of mathematical analysis and activity-based costing models to their operations that we had not seen in the previous ten years. So they understand who their preferred shippers are, which shippers work well with them and value their resources and assets [especially drivers], and those are the shippers they want to do business with. Without question, carriers take the profitability of a shipper’s freight into direct consideration as they determine how to allocate their finite resources and assets.
Matthew shared some insights from a panel discussion he moderated at the Retail Industry Leaders Association (RILA) conference earlier this year with executives from JB Hunt, Werner Enterprises, Home Depot, and Target. “They all talked about the long view, they all talked about partnership, they all talked about the importance of understanding the operational inefficiency that exists on both sides and how they performed root cause analysis to drive those inefficiencies out…So smart shippers are taking the long view, and smart carriers are taking the long view too.”
Easier said than done, of course, especially if you have a CEO, CFO, and shareholders who are focused on near-term financial results. How can transportation executives make the case for taking the long view to their CEO and CFO? Watch the short clip below for Matthew’s response:
Taking the long view also means “having a strategic plan and vision for what you want your transportation to be in 3-5 years,” says Menner. “Our most savvy customers take a long view not only from a current rate contracting situation, but from a relationship standpoint too. Have we developed the right relationships with the right carriers? They make sure there is organizational alignment from top to bottom with their carriers and they have candid dialogue around how they can help each other be more successful.”
I encourage you to watch the rest of my conversation with Matthew for additional insights and advice on this topic. Then post a comment and share your perspective on how shippers and carriers should respond to this current transportation environment.