Establishing a tailored carrier-selection process is the first step toward developing a strategic plan for the most efficient transportation system.
No matter what a shipper’s carrier procurement strategy is, it must be monitored and adjusted in response to shipper and carrier network changes.
The key to good transportation planning is having a strong carrier procurement process that accommodates a number of criteria. Common freight carriers vary in size, regionality and desired capabilities. These factors will predict carrier performance and what freight they’re best suited to move.
Like any good investment strategy, shippers should strive to choose the right logistics partner. When it comes to optimally serving transportation networks and mitigating risk, the best choice isn’t always the low-cost option.
Determining the right carrier mix is challenging, and most shippers don’t know what a healthy, balanced carrier portfolio looks like. Imbalances in carrier selection put shippers at risk. And risk hurts shipper-carrier partnerships over the long run.
The logistics division for a manufacturer or retailer has a single mission: deliver goods to market to meet customer demand. Most logistics divisions typically focus the majority of their time and energy on meeting operational requirements. Then 2020 brought unprecedented levels of disruption, complicating the supply chain landscape and forcing transportation teams to pivot on their freight procurement.
Strategic carrier procurement varies from organization to organization. Some shippers rely on a pricing strategy, looking for low-cost options, while others leverage experienced carrier relationships built over time. Some have contingency plans, while others seek freight services through a request for quote (RFQ) process.
When vetting carriers in the procurement process, today’s shippers should evaluate how they allocate freight to their partners. The routing guide should be balanced and diverse. Carriers should demonstrate positive carrier performance metrics.
Whatever the carrier strategy, using data to evaluate carrier partnerships will help address inefficacies and hidden costs in your network.
The Case for Long-Term Relationships
Many shippers have a group of core carriers who handle most of their freight. Fewer relationships result in added simplicity and an opportunity to forge strong relationships and trust. On the other hand, this approach can create an inherent risk.
Shipper needs and carrier networks are constantly evolving. Regardless of how close a shipper and carrier may be, network alignments are put in jeopardy when those networks change.
When a shipper’s volume on a lane increases suddenly, as happened during the COVID-19 pandemic for nondurable shippers, existing carriers might not have the capacity to meet increased demand. If your carrier is awarded freight from another shipper at a more profitable margin, it might not have the capacity when and where you need it. That’s why a solid routing guide requires depth. But if tried-and-true relationships are based solely on past experience, shippers might be disappointed by surprise costs and poor service.
Long-term relationships are beneficial to both shippers and carriers because partners can align their network patterns strategically, a vital capability in times of disruption. But, like any supplier relationship, these agreements must be continuously evaluated.
Shippers can add risk to their networks when they rush to award freight to low-cost network newcomers. When a low-cost carrier is selected without due diligence, it can be easy to overlook network inefficiencies.
While longstanding carrier partners can shift out of network, brand new capacity can also come and go. Service tends to be the first area where your network performance may suffer when you buy solely based on price.
Problems arise when awarded lane volume doesn’t materialize, and a last-minute contingency alternative is utilized. For example, the carrier might be unaware of special requirements at a facility, or maybe the carrier wasn’t set up properly for payment. Any number of challenges can occur, and when the needs of shipper and carrier don’t align, both are certain to have a negative experience.
Optimal carrier selection includes both the shipper’s core carriers, with their established expectations, performances and relationships, and a number of identified new carriers and brokers that are actively managed and measured. Most importantly, cost should weigh equally with service, freight requirements and other specifications considered in the procurement process.
The Broker’s Role
A shipper’s use of a brokerage is another place where inefficiencies can develop. However, brokers play a key strategic role in providing shippers with reliable routing-guide depth, quality service and an immediate solution in an unpredictable disruption. A brokerage can be a viable source of on-demand capacity in recurring lanes that travel to undesirable locations, require long stints of deadhead, or fail to provide natural turns in a carrier’s network.
Sometimes a brokerage can become a crutch for shippers that have more systemic problems with their capacity contracts. As misalignments with contracted carriers continue to occur, spot-market solutions such as brokerage emerge as the norm rather than the exception.
Whenever contract freight has proven unreliable, and the routing guide has evolved to rely heavily on brokered spot-market procurement, re-contracting a new carrier might be a far more favorable option. Many shippers defer new freight-procurement solutions until their annual RFP, but this process can be accomplished on a regular basis for select lanes.
Shippers should carefully examine where they are using brokerage most frequently, and determine whether there are opportunities to contract a stable rate with an asset-based carrier. Obtaining spot-market support on difficult-to-cover parts of the network might continue to be the best option.
National and Regional Networks
Some large shippers believe that only national carriers are properly equipped to handle the size and scope of their freight demand. This is an easy misconception when comparing a full-network map of a shipper with that of a national carrier. If you drill down to the local level, however, more granular optimization opportunities emerge. National carriers might have a wider reach, but even if they service a certain lane, they might not fit the network in question.
Small to medium-sized carriers with a focus on regional service are often a good fit, especially if they’re active networks that surround a handful of key lanes. National carriers might be willing to send trucks to these areas, but this often comes with added cost.
The best choice might be a small or medium-sized regional carrier that’s more familiar and available along these lanes. These carriers can more effectively service a shipper’s freight without the additional cost of non-compliance, deadheading or other inefficiencies.
Choosing the Right Carrier: A Starting Checklist
Rate each criterion from 1 to 10 to compare competing carriers and their ability to do the job.
- Ability to trace shipments at any given time, and report quickly and accurately
- Carrier communication with traffic department and other pertinent sections of shipper’s business
- Freight consists of high-density cargo
- Freight consists of lightweight cargo
- Facilities owned and operated by the carrier
- Facilities run by independent agents or brokers
- Located close to consignees
- Location of support people
- Located close to consignees
- Maintains proper insurance levels for the value of the commodity
- Number of shipments the carrier will handle
- Number of personnel dedicated to moving freight
- Owns or leases terminal
- Past experience with trucking firm
- Procedures and processes to learn more about shipper’s business
- Responds well to emergencies
- Skilled, experienced workforce
- Trucking firm’s truck-to-trailer ratio
- Trucking firm’s driver turnover percentage
- Trucking firm’s physical facilities
- Time devoted to shipper as opposed to the other shippers
James Mathews is senior director of truckload procurement at Transportation Insight.