When I was part of an LTL panel at the Journal of Commerce’s outstanding Inland waterway conference this past September, I shared a controversial view about the pricing behavior going on in the LTL market: I described it as irrational.
This viewpoint captured attention and was met with both agreement and disagreement. So why did I take that stance?
Recently, I’ve witnessed behavior that we haven’t seen in over 40 years of doing business at TranzAct. And we’ve sourced billions in LTL freight for businesses as large as Walmart down to companies that only spend around 250k a year on LTL shipping.
I shared more about how the LTL market is unusual in a recent podcast I did last week with my friend Jeff Berman from Logistics Management magazine. Jeff periodically calls up and ask me to share my perspective, and you can listen to our interview here.
Here are a few of the key points from our conversation:
First, a lot of shippers are using an outdated sourcing strategy.
They’re relying on the traditional procurement model which says: if I give you more business, you give me lower rates.
Here’s what you need to understand: in today’s LTL environment, the carriers don’t want all of your volume. They only want the volume that is right for the network that they have. So what does that mean? If you’re looking for lower rates, you may need to invite more carriers to the sourcing event than you had initially planned on.
A second issue is that the right research is overlooked.
It’s not enough to take a quick look at your options and, invite the incumbents plus a couple other carriers. There are a lot of options and it’s important to research the market and understand the LTL carrier needs to find the right carriers.
A third issue is that companies are using a sourcing event only to communicate what they want – not to listen.
In the traditional souring model, shippers tell carriers what they want, and then carriers respond back with a bid.
One senior carrier executive told me something really interesting: He said if you wanted to point something out that was important to your shippers, it’s the fact that they really don’t do a great job of listening to carriers. And he wasn’t just talking about rate negotiation. He noted some of the issues that affect their cost to serve, and that some shippers are enormously inefficient. They hold our trucks at the docks, give less freight than expected or cause other issues.
Looking for help?
In addition to providing advice, we can partner with you and help you implement best practices. Here at TranzAct, we can work with you to create a sourcing strategy that’s relevant for today’s marketplace.
One way to get started is to benchmark your rates.
If you’re interested in lowering your LTL costs, let’s talk - send us an email, give us a call at 630-833-0890, or schedule a conversation.