As we head into 2021, shippers are not too optimistic about negotiating rates with their carriers. The reason for this, as highlighted in the three CODE RED Webcasts we’ve hosted with our friends from CSCMP and NASSTRAC, is that in today’s transportation marketplace, shippers are operating in uncharted waters.
With capacity issues in every mode in the transportation sector, shippers – especially LTL shippers – need to understand some key issues that will affect their negotiations with carriers.
First, every (major) carrier is focused on “yield management”. When the CEOs of major transportation companies talk about the quality (versus quantity) of earnings, it sends a clear signal: They are not chasing market share, they just want to make as much money as possible on their assets. I know, that just makes common sense, but it represents a major change in the transportation industry – especially for the trucking sector.
Second, this new found commitment to yield management is made possible because the carriers now have better data than ever before and they are using this data in their pricing decisions. As Geoff Muessig, EVP and CMO with Pitt Ohio, pointed out in a CODE RED Webcast, the LTL carriers are getting very good at calculating the “cost to serve” their customers. And when there is a customer with a substandard operating ratio, their pricing will be adjusted to achieve a satisfactory return on their assets.
Third, the carriers have a couple of options in increasing their pricing. They can increase their line haul rates, adjust their accessorial charges, or they can institute new accessorial charges that address increases in their operational costs. For example, recently some LTL carriers have instituted a “high cost delivery zone” surcharge that applies when they are sending one of their trucks into a delivery zone that costs them more to serve. And some carriers have changed their “DIM factors” and/or other factors so they can apply a surcharge to more “over dimensional” or “heavy” shipments.
That is why savvy shippers know that before conducting any sourcing event or rate negotiations, they need to understand the operational characteristics of their freight. In other words, what does a carrier have to do in order to pick up or deliver your freight. Fortunately, we have some tools that have proven to be very effective for shippers.
Our Carrier Yield Test is an invaluable tool for shippers who want to learn more about the operational characteristics of their freight. Shippers who have used the Carrier Yield Test have confirmed that a major benefit of the test is that it helps them understand their freight from a carrier’s perspective. It has also helped them change some internal things within their company that have helped lower their rates.
Our Rapid Assessment process is a great tool for companies that want to look at how the decisions they make in their procurement, operations and sales areas affect their carriers and their freight costs. And our LTL White Paper and interview with an LTL expert Vic Stajduhar have useful insights about working with your LTL carriers.
So don’t let CODE RED conditions in the transportation marketplace intimidate you or get you down. As one of my customers reminded me: “If we do better than our competitors in managing our freight costs with these CODE RED conditions, it can be a competitive advantage.”
That’s the fighting spirit!