In today’s highly competitive marketplace, understanding how your company’s procurement strategy and results compare with industry peers is critical. Whether you need to inform management that your performance is superior or has improved, or identify opportunities in the procurement process to drive additional economic value – there is no better time to benchmark and bid your carrier rates than now.
During the fourth quarter each year, transportation managers and executives can be found budget planning for the year – however this year, supply chain professionals are also faced with myriad matters nationwide that will impact their capacity and carrier rates well into 2017 and beyond. In addition to the tempestuous race for the White House and how its outcome will affect the state of the United States economy, there are also new governmental regulations mandated for 2017.
Consider how these issues will impact your carrier rates and learn why now is the ideal time to benchmark and bid your rates with the help of a third-party logistics (3PL) provider.
1. The 2016 Race for the White House
As the buildup to the election progresses, we have seen a relatively vanilla economic picture that has continued to keep load counts fairly stable. Although there have been localized surges of activity, demand for trucks has remained flat overall. Because of the lack of growth, demands on available capacity have been limited so far in 2016. Once the election concludes, if the economy picks up steam, the capacity challenges seen in 2014 and early 2015 may return. If this occurs, rates will begin to favor carriers more so than they have over the past year, which will lead to increased pricing demands as carriers look to shed unprofitable business and cultivate profitable business. Carriers have become more bottom line focused and are willing to walk away from business that does not align with their goals of profitability, efficiency, and driver retention.
2. The Current State of the U.S. Economy
The same as point #1. Flat production output has moderated demand for trucks which has limited upward rate pressure as carriers are focused on keeping their trucks moving, helping with driver retention, and not as focused on rate increases as in 2014-early 2015.
3. New Government Mandates and Regulations
Electronic on-board recorders will be mandated for use in December of 2017. Industry projections are estimating a net loss in driver productivity in the 3-6% range. Any loss in driver productivity will cause a reduction in capacity as well as likely lead to rate adjustments as carriers look to recoup their “losses”. There are also ongoing discussions surrounding other productivity restraints (e.g., speed limiters on trucks) as well as potential sleep apnea rulings which may impact a substantial portion of the driver pool.
4. 2017 Budget Planning
Determining cost savings or rate reductions is strongly correlated with the individual client’s starting point. Obviously the better rates a client has before embarking on a benchmark or bid, the less potential opportunity may be available. However, in the current market, we have helped clients secure savings consistently in the 8-12% range, with some as high as 20%. But again, it all depends on their initial starting point, the freight characteristics of their shipments, and to some extent being located in a favorable geographic position.
How a 3PL Can Help
Logistics service providers can help you establish baseline measurements for transportation costs, service levels, reliability and flexibility to compare with best-in-class competitors.
- Global Carrier Network
- Flexible Engagement
- 3rd Party Validation
- Identify Opportunities
We believe there is no such thing as a bad outcome from a benchmark event. Either the client will validate that they have good established procedures in place to successfully manage their procurement activities or they will identify areas in which they can secure additional economic value for their organization. Benchmarks aren’t meant to be punitive in nature, but provide confirmation or guidance on what direction to head towards in relation to freight spend activities.
To learn more on this topic, watch “Best Practices for Freight Rate Procurement in Today’s Market.”
John Miernicki leads CLX Logistics Bids & Benchmarks service division through North America and brings progressive experience implementing, operating and analyzing distribution networks to the company. With extensive experience presenting and defending analytical reports to internal and external clients, Mr. Miernicki manages contract and rate negotiation across multiple modes of transportation including liquid bulk, full truckload, dry van/reefer and less than truckload. He also maintains a strong background utilizing on-line transportation procurement software packages for a variety of transportation modes.