Benjamin Franklin is often credited with the quote, “If you fail to plan, you are planning to fail.” It wouldn’t surprise me if he was talking to a transportation professional at the time. A lot has changed over the years, but Franklin’s advice remains as relevant and important as ever for transportation professionals. As we are now fully engaged in another year with ongoing risks and uncertainty in the market, how should shippers approach their transportation management strategy? That is the overarching question I discussed with Andrea Goodpasture, Principal Customer Success Partner at Uber Freight, on a recent episode of Talking Logistics.
The Transportation Market Today
With the extreme volatility of the transportation market over the past couple of years, I asked Andrea to level-set us with the current state of the market. Andrea notes that after previous fluctuations, both contract and spot rates soared during the pandemic. But more recently, spot rates have declined to the point where they are often lower than contract rates, giving shippers some flexibility in finding affordable capacity.
“It’s really critical for shippers to develop a strategy not only to take advantage of the current market, but also for the future,” Andrea says. “We know the transportation market is cyclical, so companies must have strategies to take them through changing markets in the future.
“Transportation management is the backbone of a shipper’s operation, so whether with their transportation partners or internally, they must put tools in place for visibility around cost and service to make sure the plans they put in place will achieve the goals they’ve set.”
Routing Guides and Capacity
A strategic plan must go beyond getting the best rates; it should also be about developing strong carrier partnerships to ensure you have capacity when you need it. I asked Andrea how routing guides support this process.
Andrea states that the critical factors are how companies design their routing guides and how they manage their capacity against those routing guides. “The biggest mistake shippers make is not first developing their strategies and instead relying on ‘this is how we’ve always done it.’ Companies should step back and look at how successful their routing guides were in the past, especially during the past two years, and if not successful, what were the pain points and what changes should they make.
“First you have to look at your network and the markets in those locations, and then what are your goals for on-time performance, cost and alignment with your goals. Also, what changes do you anticipate in your network going forward and are you aligned with your executives’ long-term goals. And from an operational perspective, what constraints need to be considered.
“Once your routing guide is live, it’s really important to put some analytics in place to monitor how you’re doing. Is there slippage? How much are you using the spot market, and is that ok? Building strong carrier relationships, especially with your core carrier base, is also important. You should have mutually-beneficial relationships with your top carriers. They’re going to rely on you for consistent volume throughout the year and you’re going to rely on them for capacity. This insulates both of you from the market swings we’re seeing.
“Now is also a really good time to expand your carrier base. In the current market environment, it’s a low-risk time to try out some new carriers and see how they fit within your network from a cost and service perspective. This includes looking at different types of capacity, such as dedicated or LTL.”
Expect the Unexpected
No matter how good your plans are, unexpected things will occur. How should your transportation strategies deal with this aspect?
Andrea states that companies need to be as proactive as possible and monitor the market and conditions to anticipate what might happen, then have plans in place to deal with these changes if they happen. For example, how will you react to adverse weather conditions or natural disasters? Also, what legislation is coming that could impact the industry, as well as what major union or carrier actions might occur. “Most of these things you can anticipate and put contingency plans in place,” she says. “There are a lot of sources available to track these situations. Make sure you have appropriate plans in place.”
One constant in transportation management is controlling costs. How does strategic planning help? Andrea says the key factor is the use of data and analytics. She says to begin with your top-line costs, but then break them down into its components such as line-haul costs, fuel charges, and assessorials.
“Once you break down those costs, you can do root-cause analysis and start to get a handle on opportunities,” Andrea says. “Another critical step is auditing the charges. Once you have visibility to your charges and have audited them, now you can compare them to industry benchmarks. Using analytics you can drill down into any variances and understand the opportunities for improvement.”
What’s Coming Next?
What should transportation professionals be telling their executives to expect going forward for their strategic planning? Andrea had some interesting comments to share, so I encourage you to watch the full episode for all her insights. Then keep the conversation going with your questions and comments.