Last month I commented on why the capacity shortage in truck transportation and the resulting hike in rates require your immediate attention. I pointed out the cards will be stacked against you this year, and likely over the next few years, in trying to keep a lid on rising truck rates. But that doesn’t mean you should fold. This month I would like to focus on strategies that can improve your odds in the rate game.
But first, a quick recap. Our survey of Transportation Service Buying Trends, conducted in partnership with the Canadian Industrial Transportation Association and CITT, found significant evidence of rate increases in 2004 with 80% of those using truck transport paying higher rates.
More than half of truck transportation buyers reported rate increases higher than 4%. About a fifth were paying more than 7% over the previous year’s rates.
The survey also found shippers paying that several surcharges. Almost 100% of shippers surveyed were paying fuel surcharges. About a third of shippers reported paying detention charges for loading dock delays; a quarter were paying a surcharge for border delays; another quarter were paying a surcharge to cover carrier costs related to the new border security programs.
Carriers’ bargaining position has strengthened because of the capacity shortage shipment volumes are rising just as Canada’s trucking industry is consolidating. But there are strategies to improve your bargaining position.
* First, remember that although capacity is tight, it is not tight in every lane and in every region. An economy growing at 3.5% or less — as the Canadian economy is expected to do this year and next — has a lot of bumps, from region to region and industry to industry. Stay on top of them and you may find some pricing opportunities.
* Be vigilant about money-back guarantees. Follow up on all service failures. You don’t automatically get your money back in some instances unless you put in a claim.
* If a carrier is pursuing "penetration selling" with you, where it has some of your business (50%-70 %) and is pursuing more, or it has lost some and wants it back you may be able to get a break on pricing. Same goes in situations of "conversion selling", where the carrier has little to none of your business. But ensure all your service concerns are covered while negotiating.
* See if you can bargain "premium" services into "standard" services. For example, some carriers apply an extra charge to track more than a certain percentage of shipments. Perhaps that could become a standard service if you have the volume and long-term relationship with the carrier.
* Challenge your transportation providers about their performance. For example, if they have a fuel surcharge ask them what they’re doing to control fuel costs. Leading carriers should have effective fuel management strategies in place to ensure they are reducing wasteful speeding, idling, and out-of-route and deadhead miles.
* Ask how they are leveraging technology to improve their efficiencies and yours. Have they invested in features such as invoice inquiry, track and trace, appointment scheduling, e-alerts, etc.? When we partnered with the Schulich School of Business two years ago to compare differences between technologies carriers were investing in and technologies their shipper customers wanted them to invest in, we did find gaps.
* Your transportation procurement strategy must lock in the carrier to price, capacity and service for at least a 12-month period. This will not be easy to attain this year, because carriers know they have the advantage. But you don’t want to be in a position where carriers are coming to you with quarterly rate increases. Our survey found that more than a quarter of trucking contracts are of less than a year’s duration and only 21% are for more than two years.
* And, finally, take a long, hard look in the mirror. Are any of your practices perhaps at the loading dock or in the way you handle data for transborder shipments contributing to higher costs?
Higher trucking rates are an inescapable market reality for 2005. But keep in mind, even the most vocal proponents of the need for higher rates are not suggesting that bad operators should be allowed to benefit from the situation.