BIZ BUZZ:With carrier costs rising, shippers need to learn to help themselves
Cautious shippers are beginning to turn down the lowest bids, choosing instead to go with carriers that offer more capacity and better service, according to bids managed by Transplace. (Courtesy: TRANSPLACE)
By KEVIN JONES
The Trucker Staff
FRISCO, Texas — Truck capacity is as tight as it’s ever been, the government is increasingly getting into carriers’ business, CSA makes qualified drivers all the more important (and expensive?) to retain, and new trucks carry six-figure stickers. So rates have to come up — and they have. A little.
A majority of the carriers report that average freight rates in the past quarter continued to rise, so says the recent First Quarter Business Expectations Survey by Transport Capital Partners LLC.
Most of the rate increases were less than 5 percent, with larger carriers reporting more rate increases in the 1 to 5 percent range than did smaller carriers. However, smaller carriers reported more rate increases in the 5 to 15 percent range.
But rates are not the complete picture, TCP noted: 70 percent of the respondents said fuel surcharges are not covering costs.
“This is obviously a direct operating cost increase that carriers are paying daily at the pump, but are not seeing adequate compensation for all fuel consumed in a timely manner,” said Lana Batts, TCP partner.
The other side of line-haul rates are accessorials, the survey pointed out, with 80 percent of respondents saying accessorials would be on the table as well as rates in their renegotiations with shippers.
Detention times were the second-most mentioned accessorial by 15 percent of the carriers.
“With equipment utilization tight and increased emphasis on compliance with Hours of Service, shippers are going to have to pay for tying up equipment and drivers,” Batts said.
She also envisions a potential shift to an even more direct connection between carriers, shippers and brokers with the advent of “real-time electronic bidding” on loads by pre-qualified carriers.
So, after shippers have chased the lowest bid for the past several years — and truckers were glad to have the business, any business — they should not only expect some rate increases, the smart ones will be asking truckers how they can help move their freight more efficiently, right?
Not so much, as Biz Buzz discovered on an annual May visit to the Transplace Shipper Symposium, where I go to get a picture of the supply chain from the other side of the loading dock. Indeed, after several years of significant transportation cost reductions, I anticipated some substantial apprehension this time around.
I was, essentially, wrong.
Of course Transplace is good at what they do: taking cost out of a customer’s supply chain (with some very impressive tools for designing lanes, managing bids, and tracking carriers), so their customers may not be a representative sample.
Still, few of the shippers I chatted with expressed any concern over fuel surcharges or accessorials — other than wanting to tighten them up — or truckers’ time wasted on the docks. Maybe I just happened to bump into the best managed shipping and receiving operations in the country — but I doubt it.
Cost is still king, although the latest Transplace bid activity shows “shippers are leaving savings on the table,” according to a presentation on “strategic sourcing.” (See the chart, which shows some shippers are not taking the lowest bids, and choosing instead to pay a premium to ensure capacity.)
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Of course, with prices rising across the board for carriers, the 5 percent rate increase shippers seem to expect and are willing to accept “doesn’t get you to even,” says American Central Transport President and COO Tom Kretsinger Jr., one of the trucking executives at the conference.
In explaining the lingering disconnect between carriers and even some longstanding customers, Kretsinger points to shippers who have replaced professional traffic managers with purchasing agents who are “zeroed in on costs,” with no real consideration for service.
The typical bid process, in fact, often works against incumbent carriers, Kretsinger added: Truckers who have experience with an account know what to expect, and will make more realistic bids to include costs beyond a simple mileage/volume/lane formula. A competing carrier who doesn’t understand the finer points of a particular job will often underbid, not necessarily to aggressively go after the business, but out of simple ignorance.
And guess which carrier, if the shipper is only interested in the lowest cost, gets the business?
“Our customers have customers, and they have to control inventory. It starts on the manufacturing line and ends at the consumer,” Kretsinger said. “Anything that extends the time in between adds to inventory costs — and delays cost far and away more the than the five-cents-a-mile difference on a bid.”
Kretsinger credits Kyle Alexander, Transplace director for strategic carrier management, for trying to bridge the communication gap between carriers and shippers. And Alexander downplays the suggestion that shippers are insensitive to the challenges faced by truckers — but admits his job calls for “a delicate balance.”
He quickly points to the number of Transplace customer education sessions that focus on trucking, including new strategies for improving carrier relationships. But some shippers will have to learn the hard way.
“The first thing that will change shippers’ attitudes is capacity. Shippers are going to have to start making some decisions at the shipping dock with relation to their carriers,” Alexander said. “The thing that will drive change is when a carrier-friendly shipper starts getting trucks that their competitor is not.”
The cost of supply chain disruption is “enormous” compared to the added cost of a reliable carrier, or of making the operational changes in shipping and receiving, he agreed.
But, as this edition of Biz Buzz was going to press, the American Trucking Associations let us know that its board had voted to oppose efforts at regulating carrier/shipper relations and business agreements, specifically detention time.
“No carrier wants to see our drivers’ time wasted,” said ATA First Vice Chairman Dan England, chairman and president of C.R. England Inc. “However, this is not an issue that can be handled with a ‘one-size, fits all’ regulation and as a result is best addressed in contractual agreements between carriers and shippers.”
This is in response to the position expressed by the Motor Carrier Safety Advisory Committee in a letter to Federal Motor Carrier Safety Administrator Anne Ferro in April. While FMCSA regulations focus on drivers and carriers, “other key stakeholders” such as shippers should be held accountable for “undue detention times” which hurt safety efforts, said MCSAC Chairman David Parker.
“This issue should be addressed by policymakers, as oftentimes the entity causing the problem for the driver/carrier is their customer and/or employer,” the letter stated. “Thus, the driver/carrier is in an untenable position to address this problem directly and effectively.”
Many of our Facebook followers were very much in favor of such oversight, though it occurs to me that no trucker could really wish the FMCSA on their worst enemy, not even on shippers. So maybe the threat of getting the government involved in warehouse traffic control is really just that: a threat — and one that certainly should get shippers’ attention.
Truckers can hope, anyway.
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Kevin Jones of The Trucker staff can be reached to comment on this article at email@example.com.
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