“Bid, baby, bid!”
So advised Tom Sanderson, president and CEO of Transplace, the $700-million 3PL company founded by a group of large truckload carriers.
Transplace hosted its annual Shipper Symposium in mid-May, an event designed to give the company’s customers and transportation partners an idea of what to expect from the economy — and from each other — in the year or two ahead.
Unfortunately, at least for most truckers, in the three years that I’ve been sitting in on the Transplace event, shippers have been in the driver’s seat when it comes to setting rates.
To its credit — and possibly because of its trucking lineage — Transplace routinely has cautioned customers to maintain good relations with their carriers. As Sanderson suggested, the reaction to getting a particularly low bid from a carrier should be to double check, making sure the trucker can afford to provide the proper service at low the price — not to plan to get an even lower rate the next time.
But 2010 could be the year — finally — when rates tilt back in the favor of carriers, as ATA Chief Economist Bob Costello explained earlier in the conference. Sanderson questioned the timeline, but didn’t doubt a significant turnaround for trucking is on the way.
“It’s coming, but the only thing we disagree on is when it’s coming,” Sanderson said. “Will [truck supply] tighten next month, or will it tighten next year? That’s really where the debate is.”
Sanderson nonetheless advised shippers to lock in capacity and pricing now rather than later, and avoid a parade of carriers each asking for price increases.
No doubt carriers are looking forward to such a traffic jam around shippers’ transportation desks.
Indeed, for its closing session, the Shipper Symposium featured a panel loaded with trucking company representatives discussing “The Aftermath of Bid Frenzy 2009 – The Impact to Shipper/Carrier Relations.”
Panel moderator Thom Albrecht, a transportation industry investment analyst, suggested the discussion be titled, “The Next Round of Bid Frenzy.”
The Transplace discussion was more civil than what I’ve been hearing from truckers for a while now. Typically, those less public comments feature phrases like “kicking me when I’m down” and “getting even.”
Not to say that some of the side room sessions at the Shipper Symposium haven’t been lively, but the guys with name tags on the main stage are invariably professional and businesslike.
So what about out-of-cycle approaches from carriers asking for rate increases, Albrecht wanted to know?
“To this point, there hasn’t been a stampede to our door,” said Ben Cubit, vice president for supply chain at RockTenn. He got a laugh from the crowd by adding, “but we feel the carriers kind of limbering up, stretching, making plane reservations.”
Cubitt characterized a call “simply to raise rates” as “undisciplined.” The “disciplined way,” he suggested, is for carriers who are looking for increases to make their case with “facts and figures,” — with details as to what has changed since the bid was placed and accepted.
“When you were doing this 10 or 15 years ago, you really didn’t know the age of the equipment, what was going on with truckers,” he said. “So I think shippers are better educated and we’re willing to have a conversation. We know it’s been a longer and deeper and cycle to our benefit and to truckers’ detriment. When people come to us out-of-cycle, we want to understand what’s driving that conversation.”
Shippers, when they sit down at the bargaining table, know what the going rate is, of course.
“The market has changed in some lanes, but we know whether it’s changed significantly,” Cubitt said. “It seems like it’s going to be a million discussions, and hopefully it’s a two-way discussion.”
Taking the other side of that discussion, Albrecht suggested that some carriers took on customers that were “a necessary evil during the downturn.” How will carriers approach customers who are not “favorites,” now that business is picking up?
“We love all of our customers,” quipped Terry Matthews, senior vice president of marketing for J.B. Hunt. “This is a cycle — I’d call this a super-cycle. Some people took advantage moreso than others, but we understand that.”
J.B Hunt ranks its customers according to profitability, “or lack of profitability,” and each customer “stands on its own” with regard to the relationship with the company. Still, the dynamic is generally the same: a carrier has to make its best guess with regard to how much it will cost to service an account 12 months or more down the road.
And typically a customer will get “one bite out of the apple” — or contract concession — during a cycle, but some have gotten “three of four bites” this time around, Matthews noted.
“We’re an industry that’s basically broke. The balance sheets are much worse than they’ve been,” he said. “The real question is, how long is the cycle going to go back up?”
The hurdles for trucking coming out of this cycle “are not small,” he explained, citing equipment age and the high cost of new equipment.
“We don’t have any margin today, so when you really look at the cost of transportation in the future, you’re looking at 15 to 30 cents a mile [increase],” Matthews said. “There are some shippers that have stuck with us and haven’t asked for cost-downs and haven’t bid their business out. Others were very aggressive and treated the trucks like they treat buying corn or sugar — probably we’ll sell our trucks like corn or sugar in the future to those folks.”
Matthews also said the company is making customers aware of “a caveat,” an operating cost increase likely to hit over the next year or two.
“Everybody’s heard about the driver issue for the last 25 or 30 years, but I can tell you it’s right on the front windshield,” he said. “Every trucker is dealing with it. First you increase your recruiting, so you spend a little bit of money there — but sooner or later the driver is going to have to get more money.”
The company is looking ahead to an extra “nickel to a dime a mile to get the drivers where they need to be,” he added.
Which is just the kind of news that makes it worth my while to pay attention to these executive-oriented meetings.
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