Severe truck capacity shortages mixed with high freight demand continue to plague the road transportation market for shippers in 2021. As a result, shippers are having trouble maintaining pricing power and contract rate compliance in this inflationary market. According to the latest DHL Supply Chain Pricing Power Index, road carriers will retain pricing power in the transportation market for the foreseeable future.¹ One major component of the index is freight tender rejections, which have jumped to a staggering 30%, further reinforcing the magnitude of truck capacity shortages.¹ To combat these unfavorable conditions, shippers cannot continue to exercise a transactional approach to supplier relationship management and expect to retain service providers and grow relationships in the future.

Shippers must differentiate from the competition and go beyond the best practices of reducing detention time, providing driver amenities, implementing favorable payment terms, and tendering steady freight volume. These “Shipper of Choice” best practices should already be standard procedures for any organization today. Instead, they need to adopt a new mindset to differentiate themselves and remain competitive.

Today, manufacturers, distributors, and retailers need to be more than just a “Shipper of Choice” to grow their business and add value to their supply base. For shippers to provide real competitive value from now on, they need to address each of the following:

1. Adopt a partnership first mindset by developing a robust strategic carrier base and minimizing transactional relationships:

Shippers should continue to form deep alliances with carriers and prioritize collaboration over temporary rate cuts; it will provide a competitive advantage. In the North American truckload market, buyers often engage in transactional relationships with suppliers, operating directly from the spot market or leveraging continuous sourcing initiatives and short-term contracts. While this might temporarily raise positioning power for a shipper, it falls short as an overall approach to procurement and carrier management, ultimately harming supplier relations. Instead, strong carrier integration will provide shippers with more value opportunities such as joint ventures, cooperative savings strategies, detailed service level agreements, and optimized distribution networks. An efficient long-term partnership with a strategic carrier base nets more significant savings opportunities and helps a shipper remain innovative, profitable, and competitive.

2. Share consistent performance transparency through a voice of supplier and carrier scorecards:

Move away from a reactive approach to supplier relationship management to a strategic one by improving carrier communication and continuously refining operations. Through a “Voice of Supplier,” a carrier can provide reliable market intelligence to a shipper, including insight into how a shipper compares to the competition. Organizations should use this feedback to invest in improvement initiatives, such as internal development programs, to keep carrier turnover low and attract new service providers.

Use carrier scorecards to ensure suppliers understand where their performance ranks based on a set of key performance indicators. Then detail those metrics, especially on-time delivery and tender acceptance rate, to make immediate changes and correct recurring inefficiencies. That process helps provide a pathway to successful future interactions and strengthens a partnership. If a carrier is to remain compliant, a shipper must hold their performance accountable too. Measuring performance, such as OS&D percentage and freight allocation, will instill trust in the carrier base that a shipper will work at their improvement areas.

3. Embrace technology for improved connectivity, visibility, and communication:

Logistics companies deal with vast quantities of data simultaneously. Employing a global Transportation Management System (TMS) and Freight Bill Payment and Audit (FBP&A) program yields increased accuracy for shipment tracking, rate compliance, and freight spend visibility. They reduce rework that comes with manual process errors, allowing a shipper to streamline operations and identify more cost-saving opportunities. With the increased market volatility in the logistics industry, logistics managers must maintain real-time visibility into the flow of goods through their worldwide network. The ability to track a product’s location from the first mile to the last is now a must-do.

Application Program Interface (API) is becoming the preferred system over Electronic Data Interchange (EDI) for information exchange between shippers and carriers. Purchase orders, shipping statuses, payment confirmations, and other data sets are sent seamlessly between carrier and shipper without delay. API enhances connectivity, leverages automation, and seamlessly integrates a supply base. Carriers embrace that technology and are no longer inclined to haul for those shippers who are still reluctant to invest and adapt.

If shippers have not already, they need to begin treating carriers as core business partners. 2020 marked a year filled with uncertainty and market volatility for the logistics industry. In 2021, shippers will continue to wrestle with severe capacity constraints and will need to tackle unique challenges in the future market climate. Collaboration with suppliers makes overcoming those hurdles much easier. Employing the covenanted “Shipper of Choice” best practices is now a requirement but adopting a new supplier relationship mindset and embracing new technology will help organizations remain competitive and differentiate from the competition. 

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Alex Hayes is a Senior Associate at GEP, a leading provider of procurement and supply chain solutions to Fortune 500 companies.

Citations: 1https://www.freightwaves.com/news/stimulus-round-3-provides-huge-boost-to-consumer-economy-freight-volumes-are-next