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2018 was a tough year for both shippers and carriers as constrained capacity led to delayed shipments and higher freight prices. Q1 2019 has started like many Q1s have in years past, with a softening of the truck market.
While things are shifting for the better, don’t be fooled. The capacity crunch is not behind us. But this slight grace period does provide shippers a golden opportunity to build and strengthen relationships with a select group of strategic carriers. Cementing these carrier relationships will ensure that you have reliable capacity at locked-in rates when the market inevitably shifts back.
The financial advantages of tight carrier relationships
Among freight transportation buyers who regularly shop freight rates across many carriers, there is a widespread belief that freight rate shopping breeds more competition and ultimately lowers costs. But when freight capacity tightens, these same buyers have to scramble to source capacity, putting their supply lines at risk. They also miss out on many of the financial advantages of strategic carrier relationships. Here are just a few:
Lower costs through network efficiency
When you award a longer-term contract, that allows the carrier to mine for other customers in the area to make its freight network more efficient. When empty miles disappear from that network, costs decrease – for the carrier AND all its shippers.
Access lower rates that are locked in
Carriers want to maximize truck utilization, so they may offer very aggressive rates to shippers who guarantee a steady flow of freight over time. Typically, rates are locked in for an entire (e.g., 3-year) contract period.
Reduce administrative time
Locked-in capacity means shippers can avoid the time and frustration involved in sourcing capacity.
Avoid technology and other onboarding investments
When a shipper’s carriers change regularly, there is a period of inefficiency each time. Drivers may need to undergo training and there could be required technology installs, such as in-cab communication devices. For strategic customers, carriers are much more likely to cover these investments out of their own pockets.
Increase customer satisfaction
It’s tougher to attach a precise dollar savings to this one, but shippers clearly see value when a carrier’s customer service team gets to know their business and procedures over time. More importantly, consignees appreciate seeing the same carriers and drivers regularly, since they develop an understanding of how they like to receive freight. Often personal relationships develop, which can mitigate problems at delivery. For instance, a retailer might expedite the receiving process for a known carrier before detention charges start.
Download our eBook on Managing Freight in a Tight Capacity Market
Tips for shippers on finding the right carrier partners
You need to spend some time on good old-fashioned carrier relationship building – not with just any carriers, but with strategic carriers.
Strategic relationships are strategic for a reason. They make sense for both you and the carrier. Shippers need to understand that, in a tight capacity market, carriers will haul the freight that brings them the highest profit. So, it makes sense to think of it this way: “For what carriers would my freight be most profitable?” Figure this out and you’ve got the blueprint for your carrier relationship building and capacity sourcing strategy.
Most likely, the answer will relate to:
- What carriers have terminals near your plants or delivery points
- What carriers deliver regularly to the areas around your locations
You’ll want to limit your list to financially viable carriers, so by all means do a financial assessment. Carriers that are struggling financially take shortcuts, such as hasty driver hiring practices and limited safety training. You don’t want to be the one getting squeezed by someone else’s forced belt tightening.
As you prepare to build out your strategic carrier relationships, remember you’ve got homework of your own to do. Specifically, you’ll want to provide a thorough outbound shipment history, with volumes and from/to data.
Why is now a good time to build carrier relationships?
During Q1, carriers are more open and interested in strategic discussions that can move their companies forward. It’s when most carriers develop plans for the year and their roadmaps for picking up new customers.
So the time is perfect for creating your own carrier dream team – at least on paper. Then reach out and share with select carriers why you think a closer relationship could be a win-win.
Right now, it might feel like the market is shifting and capacity will be more available in 2019. But that’s a mirage. Driver retention levels at carriers are getting worse and worse, and capacity is leaving the market, as exemplified by the recent bankruptcy filing at NEMF in New England.
The smart play is to use this period of calm to create a storm of interest in your freight among a select group of carriers that align best with your current distribution network. To discuss this further, contact KANE today.
