The 2:00 Minute Warning

I was talking with a great friend who also happens to be responsible for managing a big time transportation budget. During the conversation, he told me that he was alarmed and upset with the significant rate increases that some of his truckload and LTL carriers are demanding.

Then he asked me: “Since you folks at TranzAct are LTL sourcing experts do you have any recommendations about how to mitigate these increases?” Here was my advice.

First, take a step back and realize that in this sellers market, the last thing you want to do is threaten to pull the business from the carriers if they don’t want to “negotiate” with you. As we have highlighted in several Two Minute Warnings, the carriers know that you need them more than they need you so don’t make any rash moves.

Second, if you truly want to build partnerships with your carriers that will pay off in the long or short run, then take the time to evaluate your company's current sourcing strategy. Truth be told, a lot of shippers are using a sourcing/negotiation strategy that is outdated, ineffective and almost guaranteed to result in higher rates.

Third, before rushing off to conduct an RFP, let’s pause for a moment and look at three questions you need to consider:

1. First, do you know the operating ratio of the LTL carriers you’re doing business with? The operating ratio is basically the level of profitability for a carrier and a primary driver behind the rates they issue. If the answer to that question is “no” and you could use some help with these, we encourage you to call us or send me an email.

2. Second, can you define three things you’ve done in the past year to lower a carrier’s cost to work with you or make it easy for LTL carriers to do business with you? Virtually every major carrier we talk to today has confirmed the fact that in today’s environment, if you want great rates, being a “Shipper of Choice” isn’t an option - it’s a requirement! So, once again, if your answer to this question is “no” and you could use help, make your life easier and reach out to us or others for ideas. It won’t cost a dime but it could save you a bunch on money.

3. Third, before going to an RFP, do you understand how valuable your freight is to the LTL carriers you’ve invited to bid? Practically speaking, even for carriers operating in the same region, your freight may have more value for one carrier than another. That’s why you need to understand your carriers' networks before conducting a sourcing event.

Finally, if you need more help understanding the current market, you really need to check out our latest Freight Market Update. It’s getting rave reviews with shippers telling us that it has been very helpful in understanding what’s happening throughout the transportation industry and the need to adapt strategies to manage in this current environment.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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