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Hungry for a better strategy – – CSCMP's Supply Chain Quarterly
Quart er 5 2012
Hungry for a better strategy
By MICHAEL ZIMMERMAN
Tradit ional approaches t o t ransport at ion management won't st and up in t oday 's t ruck t ransport at ion
market . Shippers and carriers need a new recipe for doing business t oget her.
Start with a raw boom -and-bust business cy cle, add dem ands for low-cost flexibility , ladle on liberal am ounts of
regulation while going light on driv ers and credit, and then sim m er ov er a fire of rising fuel and equipm ent costs.
That's a recipe for the "stew" that m akes up the U.S. trucking m arket today .
Unfortunately , that stew m ay not hav e enough serv ings for ev ery one. "Capacity will continue to get tighter in the
m arketplace as regulatory , insurance, and financial pressures in a slow-growing econom y force serv ice prov iders to
exit the m arketplace or scale back their operations to a lim ited offering," predicts Phil Clouden, director of corporate
logistics at NBTY, a producer, distributor, and m arketer of nutritional supplem ents that m akes truckload, less-thantruckload (LTL), and interm odal shipm ents across the United States and Canada.
Despite that gloom y outlook, there are way s for shippers and carriers to succeed in the current m arket. The successful
ones will be those that rethink the "ingredients" they put into the business they share.
Carriers change course
Trucking rates hav e been steadily rising since 2 009 and are forecast to continue on that track for the next two to
three y ears, ev en if econom ic growth rem ains anem ic. The m ain driv ers of rising rates are surging costs for m otor
carriers and narrowing supply options for shippers as both continue to rely heav ily on the "ingredients" m entioned
earlier: traditional approaches to network planning and sourcing, relationship m anagem ent, and daily operations.
The Cass Freight Index (see Figure 1 ) shows how shippers' expenditures are rising ev en though shipm ent v olum es are
holding steady .
For carriers, the traditional recipe calls for buy ing and m aintaining the assets, training and retaining the driv ers,
and finding profitable routes where shippers will pay a prem ium for reliable serv ice. Selling consists of m aintaining
and growing the shipper base, ideally by m aking ev ery shipm ent a head-haul, as custom ers are dev eloped in
destinations that could prov ide reliable round trips. If carriers can't create the perfect fit of shipper with lane, then
brokers find the loads and the trucks' owners pay the broker's m argin, either from their own pockets or by passing
that charge on to the head-haul shippers. The worst outcom e of this traditional pattern, of course, is the "em pty m ile,"
which shippers pay for either as a m inim um charge in short-haul lanes or as a prem ium fare when their carriers
cannot find a load for part of or the entire return trip. The rest of the em pty m ile is eaten by the carrier.
Forward-thinking carriers are increasing their profitability by inv esting in m ore fuel-efficient equipm ent, better
technology , and im prov ed driv er screening and training. More of them are getting into the brokerage business as a
way to supplem ent their incom es by utilizing existing resources. Larger brokers, m eanwhile, hav e not stood still and
are growing in size and sophistication. They hav e heav ily inv ested in people and technology that allow them to go
bey ond traditional load-m atching serv ices to earn their m argins. Som e, for exam ple, offer shippers a m anaged
transportation m anagem ent sy stem (TMS) that includes contract m anagem ent, safety -rating m onitoring, and
freight auditing and pay m ent. Others prov ide attractiv e features (such as factoring, fuel program s, and pooled
insurance buy ing) that bind carriers to them and, m ost im portantly , differentiate them selv es from the new entrants
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Hungry for a better strategy – – CSCMP's Supply Chain Quarterly
in the m arket. In these tim es of constrained capacity , the best carriers and brokers are also becom ing m ore selectiv e
when it com es to the shippers they serv e, and they 're using freight rates to help them m ake those choices.
Shippers' strategies
Turning to shippers, their basic recipe has been to build a base of reliable carriers, giv e the new ones that call on them
a shot at som e lanes, and keep them all on their toes by asking for occasional bids for som e part of the distribution
network. Less-regular lanes or seasonal v olum es are bought on the spot m arket. Larger shippers m ight lev erage
benchm arking databases to find out where they 're pay ing abov e-av erage rates, and then focus and tim e their bid
efforts accordingly .
The prognosis for these shippers is that their freight rates will rise and fall with the boom -and-bust m arket trends.
While shippers m ay be able to get cheaper rates when v olum es are low, high rates will ev entually catch up with them
when capacity shrinks.
Although the basic recipe for transportation m anagem ent is already resource-intensiv e for both shippers and
carriers, som e successful shippers hav e taken the extra tim e and effort to inv estigate how to work with their carriers
to reduce network costs and raise efficiencies. "Carrier relationships will be v ital to shippers as they narrow their
carrier base and lev erage the av ailable v olum e in a slow-growing econom y ," say s NBTY's Clouden. "Frequent
com m unication, m etrics-driv en perform ance analy sis, and quarterly business rev iews will becom e standard in
carrier and shipper relations."
As Clouden suggests, the day s of sim ply m eeting around the negotiation table to talk about rate increases and
benchm arks should giv e way to rev iews of which com ponents of the network work well, which don't, and what
im prov em ents can be m ade.
A new recipe for success
With a backdrop of increased v olatility that driv es uncertain returns, together with the tighter credit and increased
regulation that are capping capacity , truckload rates m ay continue on a path of 3 -percent to 6 -percent increases for
the m arket at large. But that won't be true for ev ery one. The m ost effectiv e shippers and carriers hav e found that
they m ust regularly re-exam ine their entire network and the inefficiencies and opportunities that arise within them .
Only then can they reallocate capacity to where it will best be used, work to rem ov e inefficiencies (such as clogged
y ards, long unloading tim es, and long pay m ent term s), and m inim ize the em pty m iles in their respectiv e networks.
Clouden sum m arizes this new recipe for success: "The [truck transportation] sourcing process will continue to be m ore
strategic and confined to m ore financially strong serv ice prov iders with a broader footprint and m ultim odal offerings.
The willingness of carriers to form stronger partnerships with shippers and share in the sav ings by offering a greater
v alue proposition will be m ore critical ov er the next 1 8 m onths when [shippers are] sourcing transportation
prov iders."
Article Figures
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Hungry for a better strategy – – CSCMP's Supply Chain Quarterly
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