I recently got fired up when I read a post from a Transportation Professional on LinkedIn that detailed how he felt that it was not a great idea for a company to engage with a Parcel/Freight consulting company for assistance with carrier contract negotiation. The message the post attempted to deliver was that it’s not worth bringing in outside experts, due to the fact that the costs associated with doing so will erode a lot of the overall savings potential.
I really saw a lot of issues with the message that the author of the post was trying to portray, along with opinions expressed by others in the comments. This left me thinking that there really are a lot of misunderstandings and misconceptions in the Logistics community regarding the value that a Parcel/ Freight consultant can provide. I would expect that this negative sentiment is driven by bad experiences, and bad actors in the Logistics consulting world.
So, I thought it would be beneficial to put together an article that explains how all Logistics consultants are not created equal. I will also address the reality that the costs associated with engaging Parcel/ Freight consultants may appear at first glance to be high. However, the value that a solid provider delivers should always outweigh the cost multi-fold. If you engage with the right Parcel/ Freight consultant- the ROI should be staggering!
There were several recurring themes in the original post and comments that attempted to downplay the value of Parcel/Freight consultants.
- The Gain Share pricing model that is often used in the Parcel/Freight Consulting world is too costly and should be avoided, or minimized.
- Companies should hire in house Transportation experts instead of using consultants or outsourcing
- Parcel/Freight Consultants do not have access to, and cannot provide meaningful Market Intelligence. They only use marketing and scare tactics that suggest that carriers are overcharging shippers.
As someone that has been on both sides of the negotiating table, I feel that I am well positioned to address each of these scenarios.
No Pain, No Gain
We have been hearing more and more about companies being concerned with the Gain Share model, due to the costs that can be associated with this. There are often concerns about the percentages being charged, along with the Gain Share term (length of time that is charged).
The good news for shippers is that the Gain Share amounts that consultants had charged in the past (as much as 50%), have come down. This is somewhat due to increased competition in the consulting world. But, is also tied to improvements in technology.
The analysis associated with Contract Optimization/Analysis that was done in the past was a bit more manual. Carrier data has gotten better, and consultants have been able to build programs that take away some of the manual work that was required in the past. This has helped to drive down some of the costs incurred by consultants, which is now being passed onto their shipper clients.
However, we must caution you about relying on the use of technology in the Contract Optimization/ Analysis process. Our long term experience tells us that besides having good technology and systems, it is imperative that a consultant also incorporate their knowledge, experience and insight into the process. The bottom line is that good consultants will “put their hands on your data”.
There are consultants out there that will just inject your carrier invoice data into their system and then have it spit out results, which will be fed to you. These types of consultants are also likely to agree to the lowest Gain Share percentages and terms. There is a reason for this, and you will pay for it in the end. Basically, they are not spending the time or using capable human capital to truly dig into your data to provide a comprehensive analysis.
Money that you save from those offering lower Gain Share percentages and terms can be far less than what you can save by partnering with a consultant that really digs into your data, and has the resources and intellectual capital that will lead to the best outcome for your negotiations.
Shippers often push for shorter Gain Share terms to keep their costs down, and maximize their savings in later years of a contract. However, it is important to consider the downside to this. A top notch Parcel/Freight consultant will check carrier rates for accuracy as part of their weekly Gain Share reporting process. So, shippers basically receive a comprehensive free rate audit as part of a Gain Share scenario. So, once the term of the Gain Share agreement is over, so is the auditing process.
We can tell you from firsthand experience that carrier rates need to be checked in every year of an agreement. We have seen customers experience significant overcharges following annual rate changes, since there are a lot of manual processes that carriers use to update shipper’s rates, discounts and incentives. The impact of money lost due to billing errors can easily eclipse charges associated with paying a Gain Share for multiple years.
Right Man (Person), for the Job
There is no debate that a company should try to hire top notch Transportation professionals for their Logistics functions. We can tell you how important this is, because we work with a lot of them!
There is a common misconception in the Logistics world, that a company only needs to use a consultant if the folks that they have on staff are lacking in knowledge or experience. Some Transportation professionals feel threatened by consultants because they are afraid that they might make them look bad! Some Transportation Professionals feel that leadership might question their abilities if they push for a consulting engagement. There is nothing further from the truth than this.
Parcel/Freight consultants provide tremendous value to a company’s Logistics function in a variety of ways. First, good consultants have a much broader view of carrier rates compared to an individual Transportation or Logistics Manager. If a carrier offers a proposal to a Transportation/Logistics Manager, that individual only has the ability to compare the offer to their existing agreement. Maybe there are savings, but how do they know if these are the best rates they can achieve? They have nothing else to compare them to! A good consultant will have the data, experience, and insight that no individual within a company’s logistics operations could possess.
Another way that consultants support top notch Transportation Professionals is by providing a second set of eyes. Anyone in the Parcel/Freight world knows that carrier agreements and proposals are complex. It is very easy to miss a single discount level, minimum, or contract term, that could have major impacts on shipping costs. So, having a good consultant review carrier agreements and proposals is basically a form of insurance against making costly mistakes! Once again, this could pay dividends far beyond the costs associated with engaging with a consultant.
Artificial (Market) Intelligence
Just so you know, we did not use AI to write this article! Also to let you know, our Market Place intelligence is real! If a consultant tells you that you are over paying your carriers before analyzing your data, you better start running. If a consultant is willing to quote you a Gain Share percentage before analyzing your data, forget running, get in your car and get the hell out of there as fast as you can! Both of these are signs that there will be little effort, insight, or resources put into helping you negotiate the best deals.
A good consultant will not use scare tactics or misrepresentations to help increase their business. The better consultant will provide potential customers with a free Comprehensive Logistics Analysis to determine if there are any real savings opportunities. The best consultant will use a free upfront analysis, provide marketplace data they possess, along with their experience and unique insight to help you drive maximum savings. They will utilize a multi-faceted approach (not just Contract Optimization) to help you improve your bottom line.
So, if you would like to explore the benefits of working with a best in class Parcel/Freight consultant give us a call today. We are sure that you will get fired up when you hear some of the creative ways we have helped shippers achieve unbelievable ROI’s through their engagement with us.
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