Shipper-Carrier Collaboration – Establishing Trust

The essence of successful freight rate negotiations is an honest exchange of information. Carriers count on shippers to supply them with complete and accurate information on shipment weights, dimensions, volumes by lane, seasonal spikes and any special service (i.e. job site deliveries, weekend pickups etc.) requirements. Shippers expect carriers to be able to supply them with the correct types of equipment to pick up their freight at the designated time, to provide adequate amounts of equipment at the right time to move their loads, to meet their designated transit times over 95% of the time and to provide good customer service and quality information as they outlined in their submission and interview.

While this all seems so straight-forward and reasonable, there are a host of challenges that get in the way of committed shipper-carrier relationships. Here are a few to consider.

Changes in Shipment Volumes

Business conditions are constantly changing. There are ebbs and flows in the general economy that can impact on many industries, including both shippers and carriers. There is ongoing competition in the market where shippers win or lose customers every day. Then there are mergers and acquisitions and new product launches (or old product cancellations) that can lead to rationalization of locations for factories or distribution facilities. The net impact of these changes is that the shipment volumes discussed in an RFP may not come to pass or the actual volumes by lane may vary over time.

Changes in Equipment Availability

Similarly, carriers face a variety of challenges and opportunities. The rates supplied to a shipper may be based on certain volumes of head haul or back haul freight. But these dynamics are constantly in flux.  New business is being won and lost on a daily basis as a result of service changes, modal options (i.e. switching from over the road to intermodal service) or competitive pricing initiatives. Carriers are continuously seeking head haul or back haul freight on their core lanes of business so they afford to supply shippers with the equipment they committed to provide to move their loads.

New Business Opportunities

In addition to the market forces above, shippers and carriers face other challenges.  After an RFP has been completed, a new or previous incumbent carrier may come back with lower rates. The shipper faces the dilemma of should they maintain the commitment that was made during the process or switch to another carrier so as to save more money on freight.

Carriers may commit to serve shippers but come across other business on the same lanes that produces higher profits. They face a dilemma. Do they honor their commitment, shift or buy equipment to move this higher paying business or supply a lesser amount of equipment to their committed client and provide them with a rationale as to why they cannot live up to their prior commitment.

These types of challenges test the honesty, integrity and level of trust of both parties. There is no simple solution. While it is fair to say that honesty is always the best policy, there is a risk in how the other party may receive the news. As a shipper, how would you respond to a carrier saying that they have just secured a new account that pays higher freight rates and they now have less equipment to supply to your company?

Establishing Trust

 This is how I see it. Both shippers and carriers should be trying to create as many long term partnerships as possible. As the culmination of any rate/service agreement, both parties should be seeking a multi-year (i.e. minimum 3 year) commitment. This gives the shipper rate, equipment and service certainty over an extended period of time. Multi-year commitments give the carrier revenue certainty.

The two parties should meet at a senior level and attempt to establish a level of commitment to one another, a commitment that can survive the various tests and challenges along the way. This commitment shouldn’t take the form of a minimum annual contracted volume. Rather, it should take the form of ongoing communication and meetings between the parties to address challenges along the way. This is the best way to build trust. The end result is that the shipper resists the temptation to switch carriers to save a few bucks. The carrier resists the temptation to divert the promised equipment to other clients or make up stories to deceive the original client. In return they both enjoy the benefits of a committed relationship.

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