One of the highlights of last week’s Transportation Company Workshop that was held in Toronto was the panel discussions on rate increases. The two shipper panels contained some of Canada’s largest retailers and manufacturers (e.g. Loblaw Companies, Nestle). The six shippers were in agreement that to obtain a freight rate increase, the burden of proof falls on the carrier. The carrier must provide a sound business case for any rate adjustments. In fact the panellists took the discussion a step further by highlighting how important it is for their carriers to bring cost savings opportunities to the negotiating table.
The truckers and logistics company on the carrier panel expressed the view that rate increases are required this year to cover cost increases and to maintain profitability. These opposing views set up a potential “tug of war” in Transportation Manager offices across North America. How can shippers and carriers reach a “meeting of the minds” on this fundamental issue?
The key is to look at the “end game.” Beyond the actual rate agreement itself, there is a need for shippers and carriers to understand that they are forming ongoing business partnerships. Once the ink is dry on the paper, the two parties will need to work with one another for an extended period of time (e.g. usually a minimum of one year, sometimes longer). Both participants must achieve their goals, including their financial goals, to establish a durable relationship.
Where do you start? Before addressing the numbers, there is a requirement to create a healthy business environment, one in which the parties can share information and communicate openly. This requires a certain level of honesty and integrity, in some cases with the help of mutual NDA agreements. For shippers this means that they have to treat their incumbents and new carrier prospects fairly. Why would a carrier want to engage in a discussion with a shipper that has a history of shopping back competitive rates and using them as leverage with their incumbents, particularly those that stay with the same carrier or carriers year after year? Why would an incumbent carrier “open its books” and share confidential cost information with a shipper that is not going to maintain the confidentiality of this data.
Shippers wishing to engage in these types of relationships have to demonstrate a sincere willingness to exchange information on sales forecasts, seasonal fluctuations, freight mix, product densities and customer order sizes. To identify possible freight cost saving opportunities, shippers need to be receptive to addressing elements of the business (e.g. pallet configurations, mode choices, customer order sizes) that are contributing to suboptimal freight costs.
Carriers need to be willing to provide information on capacities by lane, availability of head haul or back haul freight and other data. Both parties need to be able conduct an open discussion without being overly defensive on topics such as the carrier’s ranking on each lane, on-time service performance, OS&D activity and how they are truly perceived by each other. This is not easy.
If the two parties can engage in this type of mature dialogue, in an atmosphere of trust, then they can take their relationship to a higher level. The shipper then needs to be able to provide freight volume commitments if the carrier can provide certain rate, capacity and service commitments. The carrier needs to be able to present specific data (e.g. rising labour costs, fleet upgrades, rising insurance costs etc.) to provide the shipper with an appreciation of the cost increase drivers.
There are only certain shippers and carriers that are able to establish these conditions of trust and openness. Not all companies are able to participate in this level of data interchange, even with an NDA in place. You have to start somewhere and look at this process as a “work in progress” that will take time to evolve. There are great benefits to both parties in elevating their “game” and working together as loyal, committed business partners.
