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.
The survey differentiated between “winners” and “all shippers”. “Winners” were those shippers that negotiated the most attractive pricing. Winners ranked “price quoted for services” as the most important component of the bid as compared to 56% for all shippers. Thirty-nine percent of winners negotiated service level guarantees for transit times, on-time deliveries and damages while the comparable figure for the all shipper group was 33%. Eighteen percent of the winners negotiated capacity guarantees while for the sample as a whole, the number was 11%.
The study shows that as the economy is softening, shippers are looking to hold rates or negotiate minimal increases. The carrier negotiation period is shrinking to lock in the rate freeze or rate decrease more quickly. The more successful shippers are building in service and capacity guarantees into their contracts to further protect their companies. Price has again become the most important element in freight rate negotiations.
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