Can you save money by making it easier for carriers to do business with you? It’s not a new topic, but as a community, have we reached a definitive answer?
It may not be the most politically correct analogy, but I once had a customer describe this philosophy as “the beauty pageant of freight.” From his perspective, the more attractive his freight was to the carrier community, the more apt he was to gain capacity at a fair price, and thus achieve his financial objectives.
Clearly, logistics professionals should endeavor to establish good working relationships with transportation providers. But how far should we go to create procedures and policies that are carrier-centric? Do these policies deliver to the bottom line? How do different shippers define “carrier friendly”?
We spent time examining these questions at the last TMC customer forum. It was an interesting discussion and a diverse set of ideas was represented. One shipper commented that these practices come at a cost, which has to be balanced against the net outcome. Another participant supported the carrier-centric approach as a way to avoid out-of-network carriers. In effect, this participant viewed it as a way to improve overall access to capacity and a spot market avoidance strategy.
Dr. Chris Caplice, Executive Director of the MIT Center for Transportation & Logistics, has attempted to quantify the benefit of these policies and their impact on actual rates. He explained the approach at the TMC Client Forum.
Via his research and in conjunction with the professional services firm Chainalytics, Caplice has developed a model for determining whether there is a difference between the rates paid by shippers with and without these types of policies. The latest analysis was carried out in the spring of 2011, and included 77 long haul dry van shippers.
The research has achieved “somewhat consistent results over the last five years” reported Caplice. For example:
- Shippers with low overall accessorial rates had 1% to 4% higher rates
- Shippers with payment terms >30 days had between 1% to 8% higher rates
- Shippers requiring surge coverage or volume commitments had 1% to 3% higher rates
- Shippers providing less lead time to carriers had 2% to 10% higher rates
However, he acknowledged that there are lots of issues with the analysis. It is not easy to isolate the impact of carrier centricity because most related policies reside at the company, rather than at the shipment or facility level, for example. Also, comparing and quantifying policies is difficult, as is quantifying the concept of being carrier focused.
The research has also considered the connection between rates and lead time (for more on the effects of lead time see Savings Tricks You Might Have Missed). In general, shorter lead times tend to increase rates, according to Caplice. An important factor is repositioning costs, because if these costs do not make financial sense then the transportation service provider is likely to decline the load. If this happens, the shipper may have to go lower in the route guide to find capacity.
In other words, the value of carrier-friendly policies is inconclusive. Much depends on the shipper’s goals and market conditions.
What have you found via your own experience? Do these policies matter? What’s your advice to shippers? Please share your comments below.