Transportation and Logistics professionals are continuously challenged to improve the efficiencies of the services they receive from their transportation service providers, while at the same time having a need to reduce the costs for providing those services. This challenge is certainly not a new one; it’s one that has existed for generations. And, one of the main reasons it remains a challenge today is because sometimes these executives fail to perform their due diligence before entering into business relationships and when that happens, these relationships are doomed.
So, how does one accomplish the task of securing the best possible service at the most competitive price for those services? We believe a great place to start is to first and foremost gain a comprehensive understanding of exactly what your company needs in terms of service before even trying to determine what the costs to supply those needs would be. While this seems like a very basic and fundamental principal, you would be amazed at how many executives bypass this initial starting point. You see, many executives are merely focused on the rates they are paying without having an understanding of the variety of services available from the carriers and service providers their company’s utilize.
Would anyone pay extra to have their packages delivered in two days when they could have them delivered the next day? Of course not, but many company’s do just that. And the worst part is that in many cases these companies don’t even know it’s happening. Parcel giants FedEx and UPS receive considerable revenue from shippers paying for expedited services when they may not be required.
Would a company agree to pay more for sending a smaller shipment than for a larger shipment moving from the same origin to the same destination? Of course not, but shippers do this each and every day by not truly understanding the services their carriers provide, and the varying charges for those services. In many cases lower rates are available when larger LTL shipments are consolidated from various sources into a truckload rated shipment with each shipper paying a small portion of the entire cost. And another advantage is often a faster delivery to their customer; we’d certainly call that a Win-Win situation.
Which brings us to a fundamental question – How does a company select the right carriers for their company’s shipments? The first place to start is to gain a comprehensive understanding of ALL of the services the various carriers provide and how their rates are structured for each of those services. Shipper’s need to ask themselves these basic questions:
- What service options are available?
- What services does my company actually require?
- What services does my company absolutely not need?
- What other elements should we put into the carrier selection process?
- How will my company be impacted by the decisions I make?
In order to develop a strong carrier selection process a company needs to create a transportation and logistics strategy that takes into account all of the company’s goals for that strategy in order to be effective. You need to know the carriers’ complete service offerings, costs, pricing structures as well as their contract terms and conditions before agreeing to give them any shipments. Remember, Knowledge is Power! For starters, make sure the carrier can meet all of your company’s needs. If they cannot, there’s no sense in trying to get them to give you a lower price! Performing on-going measurements by both parties will ensure the relationship is working just the way it needs to. Remember, “You cannot manage what you cannot measure.”
Carrier qualification and selection processes must be part of a much larger Carrier Quality Program. Define what your expectations are, make sure the carriers’ can meet those expectations, because if not you will be guaranteed to fail. Create strong, long term, open and honest partnerships with all of your freight carriers which will help you to not only improve service, but at the same time reduce costs. Have an “open book” mentality with your carriers. That doesn’t only mean your carriers’ books, but your company’s books as well. Don’t hide anything or try to pull one over on your carriers because if you do, it won’t be long before they increase your rates, or decide you’re no longer the “ideal” customer you told them you would be.
Help each other to drive down costs that affect both you and the carrier; remember you’re partners and as partners both sides need to do everything possible to help each other. Establish “no-fault communications” which means stop pointing fingers and work collaboratively to fix all problems when they occur regardless of who is at fault. FLASH: Notice to shippers – it’s not ALWAYS the carrier’s fault!
While many of the key carrier selection elements we mentioned here may seem to be basic in nature, (and in truth they are), each and every day we see shippers and their carrier partners terminating relationships because one party or both failed to take these elements into consideration. Don’t be one of those sorry statistics. Make sure you know what you need and who can best meet those needs. Only then should you begin to have a discussion about what those services should cost.
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