Should carriers utilize scorecards to determine who to allocate capacity to? – “Shippers of Choice” and “partners”.
Most definitely carriers should use scorecards to grade shippers and the customers/receivers of shippers. When shippers created core carrier programs and wanted long term partnerships, volume commitments, etc. and this resulted in some carriers investing in equipment, committed to placing this equipment within the shippers network, and trained their personnel to monitor the capacity and service to optimize the networks of both the shipper and carrier (2016-2018). The carriers are now seeing shortfalls in their anticipated freight volumes due to freight being soft (2019). Shippers that are true partners would not let the pressure of a soft economy let them chase lower rates from brokers or new carriers. Shippers need to ask themselves; Do I favor cost savings over commitment? Because when roles get reversed and rates pressure upwards, do the core carriers leave for higher paying freight? My guess is some carriers do, but the vast majority of carriers stay loyal to the shippers. However, carriers will search for higher paying freight, if the commitment does not work both ways.
Sometimes, depending on culture/ environment of shippers Logistics/Transportation department, no leverage exists within their own company to follow the process established with long term committed partners. If the shipper chooses to chase cheaper rates, which is a short-term strategy with cost savings as the only motivation, then the partnership will begin to suffer, and consistent capacity will soon begin to disappear. Ask yourself would other industry leaders in Manufacturing, Tech, Big Pharma, etc. accept less than 10% margins. My guess is no, so why should the trucking industry, which is exactly what happens when shippers operate this way giving committed volume to the spot market. It was a commitment and trust issue when market was tight and capacity needed by shippers, but now it is transactional and no trust. What’s up with that? No creditability on behalf of the shippers playing this game, so its no wonder when RFP’s and negotiations happen it becomes strained and challenging to say the least. Who now pays for the added equipment capacity, higher labor rates, etc. certainly not the shipper, but the carrier pays and generates poor to negative returns when volume is taken away or offered to them at lower rates due to market pressure. What are carriers to do? Fight back with real data and numbers and be willing to professionally communicate your thoughts to the shipper and be tough on how you will operate for the shipper going forward. It is not a one way street, after all the carrier is in business to make money for shareholders or stackholders as well and cover the cost of capital and then make a normal profitable return which by the way is not 3%.
Thus, my suggestion below.
Shippers have been utilizing scorecards, measuring carriers on various KPI’s and using this data as part of negotiations for many years. Carriers need to create a shipper scorecard and use it as part of negotiations. Some KPI’s to track are:
- track how often are appointment times actually adhered to – % of times carrier is in the door by the appointment time.
- How are volume commitments matched up with tenders? Track and calculate YOY, quarter to quarter trends and changes.
- average load/unload time (start of appt until drivers is loaded/unloaded and checked out with paperwork and on his/her way)
- communication accuracy on tenders – are special instructions spelled out, especially customer specific ones.
- % of loads with excessive delays (over 2 hours) loading or unloading
- % of collections on layovers, detention with valid documentation and not negotiated down unless unusual circumstances exist. In other words do shippers pay accessorials according to the agreed rate contract with appropriate documentation.
- % of other legit documented accessorials paid in full – TONA (truck ordered not used), re-delivery charge – especially on multi-stop loads, diversion/reconsignment mileage charge and corrected BOL fee.
- On-time pickup/delivery %
- reason codes for delays [if known] at shipper facilities or shipper customer receivers – this is a direct cost to carrier and truly affects driver retention. This also communicates to shippers where the issues are.
Should carriers give capacity to “Shippers of choice”. Some characteristics of “shippers of choice are:
- Does Shipper honor the agreements with respect to volume, rates, etc.
- Pay quickly (within 30 days) and accurately. Have pre-audit capabilities if using a TMS system.
- Treat drivers with honesty, respect and a positive attitude at manufacturing, and warehouse loading/delivering sites. If shipper is running behind on appointments tell the drivers and give them an honest estimate of new loading time. This will be especially true, if newly proposed FMCSA HOS rules are adopted.
- Create scheduling flexibility for PU/Delivery not only at warehouses and manufacturing sites, but more importantly for customer deliveries of LTL size freight deliveries. i.e.: food industry
- In tendering shipments, create visibility and lead time for carriers.
- Use of TMS systems that are easy to interact with. Some systems are too time consuming for carriers. Tendering, accepting tenders, settlement and getting paid should not be that difficult.
- For consistent TL deliveries or pickups, create a standard fixed delivery/pickup window. Carrier or Transportation department of shipper should not have to make appointments through a customer/receiver system, if it’s the same delivery week after week. Customer could put consistent appointment time on PO, when ordering. Receiving locations blocks out time in their scheduling software ahead of time to adhere to PO time.
- Shipper should offer both inbound and outbound to carrier which should help optimize in some scenario’s, both carrier and shipper networks. A continuous move program should be established, if shipment patterns dictate the opportunity for one. This again should be an economic win for the shipper and create operational efficiency for the carrier with respect to variable cost control and driver retention.
- Provide overnight parking in a safe well-lit area. Access to bathrooms, drivers lounge area with wi-fi and microwave to warm up food and vending machines.
- Long term or multi-year procurement process, not annual RFP’s. (see #11)
- Be proactive with changing volumes – lost business, new customers or general sales volume changes. Like Real Estate is location, location, Transportation/Logistics is about accurate communication, accurate communication. A carrier’s network, if properly managed, is critical to high levels of service to the shipper and its customers. A well operated network contributes positively to carrier profitability, driver income, satisfaction and retention. When those carrier items are accomplished, consistent capacity is the reward for the shipper. This is especially important during peak volumes and seasonality spikes in volume. Bottom line, Carriers should grade shippers with scorecards, especially since all the data is available. This should lead to better communication between shipper and carrier leading to improvements and efficiency gains in those KPI areas that hold costs and rates in line while improving driver use of HOS and improving retention rates for the shipper’s core carriers. Additionally, it provides the shippers Logistic/Transportation department information to discuss with other departments – warehousing/scheduling, etc. to develop corrective action plans and operational changes that benefit both parties. The future is now, and this should be the standard operating behavior of true partners, not constantly asking for RFP’s to lower costs or brokering normal volume for cheaper rates.
Please review Joe Kost’s article at www.TrueDTI.com.