In last week’s blog, I shared some ideas from the recent SCL – CITA annual conference on how to improve shipper- carrier collaboration.  Various suggestions were proposed by a panel consisting of two leading shippers and two major Canadian carriers.  Some other thoughts were expressed during other tracks that day.

The panelists presented some suggestions that came out of a joint meeting between the Ontario Trucking Association and the Canadian Industrial Transportation Association.  Here is more of what they had to say.

Removing Waste from the Shipper and Carrier’s Operation

During the panel discussion it was suggested that it is through trust, communication and dialogue, rather than through an RFP, that opportunities to remove waste from a shipper’s operation can be identified, discussed and solved.  The RFP process is typically too rigid to allow for a meaningful exchange of ideas and for the development of action plans. 

Since the focus in an RFP is typically on rates and service, it doesn’t create a forum for dedicated problem resolution.  Moreover, by not creating project teams, action plans and time lines to remove waste, the inefficiencies typically doesn’t get extracted.  The shipper continues to perform the same functions, in the same way, with its existing and/or new carriers.  Drivers continue to be pick up half full loads since opportunities to consolidate freight or change pick-up dates are missed. As one trucking executive mentioned, the savings generated from these types of initiatives can be much larger than the two percent saved as a result of the freight bid.

The subject of Shipper-Carrier Collaboration and Freight Bids came up in at least three tracks at this week’s Supply Chain Canada Annual Conference, presented by SCL and Canadian Industrial Transportation Association.  The subject was discussed at length during a panel discussion entitled, “Shipper-Trucker Relations” led by Lou Smyrlis, Editorial Director, Transportation Media, Business Information Group.  To address the sad state of relations, the panelists highlighted some of the issues raised at a recent meeting held between representatives of the Ontario Trucking Association and the CITA, one of Canada’s leading shipper advocacy groups. 

This discussion was of great interest to me and my company since we have been involved with freight RFPs (Request for Proposals) for over nine years, helping shippers design and execute their bids and helping carriers respond to some of the more complex RFPs.  Here is some of what I heard this week and a few ideas on how to fix several of the problems.  First here is a bit of background.

The Great Recession – the Trigger for the Freight Bid Mania

Prior to forming my consulting practice in 2004, I worked for carriers in the freight industry for many years.  Freight bids have been around for at least twenty years.  Before entering the consulting arena, I had seen and responded to my fair share of RFPs.  Freight bids became very prevalent during the Great Recession in the late 2000s.  As business volumes and revenues shrank, many shippers employed this tool to drive down their freight rates. 

One of the panelists on the Shipper-Carrier Relations track spoke about how overused and abused the tool became.  He highlighted the fact that some shippers conducted as many as three bids on the same freight in the same year to drive down rates.  Freight bids have now become an overworked and often times poorly used instrument to source modes and carriers.  One trucking company executive on the panel was very blunt in his views on freight bids.  He stated simply, “I hate them.”

American Shipper conducted their annual shipper survey earlier this year to determine Best Practices in Freight Transportation Procurement.  The magazine contacted 275 manufacturers and retailers in May of 2012.  The results were published on June 27, 2012. 

They reveal some interesting changes in shipper behavior.  In terms of percentage increase in freight spend, 38% of the respondents indicated that their spend increased by more than 5%.  This compares with 58% in 2011.  Thirty-four percent of the same experienced an increase of less than 5%.  This compares with 17% in the previous year.  Only 11% experienced a decrease in spend.  In 2011, the comparable figure was 16 percent.

The trends for contract freight were similar.  In 2012, 21% of the same sample experienced an increase of over 5% in contracted freight rates.  In 2011, the comparable figure was 40%, a significant decline.  Thirty-seven percent negotiated an increase of less than 5%.  This compares with a figure of 31% in 2011.  Twenty-four percent of the respondents experienced no increase in rates.  In 2011, the figure was 10%.  Clearly there has been a dampening of rate increases in 2012.

The survey respondents were asked to rank the importance of Price, Service and Risk in their freight rate negotiations.  Fifty-eight percent of respondents ranked Price as number one in 2012 as compared to 48% in 2011.  The comparable figures for Service were 42% in 2012 versus 49% in 2011.  No respondents ranked Risk as number one in 2012 as compared to 3% in 2011.

The survey analyzed the cost savings advantages of negotiating freight rates on a centralized basis versus on a decentralized (e.g. multi-plant, multi-divisional) basis.  Thirty percent of decentralized companies experienced an increase of 5% or more as compared to 15% of those companies that negotiate on a centralized basis.  Forty-two percent of the centralized respondents negotiated no increase as compared to 31% of the decentralized group.  Eighteen percent of the centralized group negotiated rate decreases as compared to 20% of the decentralized shippers.