With pricing pressures at the forefront of shipper concerns in 2014, the relationships between carrier, 3PL and shipper networks are paramount.
Here are a few of the issues the transportation industry is facing:
- Limited availability of asset carriers
- Concerns on hours of service
- Shortage of driver resources
- Intense competition from loss-leader providers
The most successful shipper networks will be those with defined strategies on how their freight should move in relationship to the profitability of the carriers they, or their 3PL, utilize.
Many studies have concluded that the continual bidding of a shipper’s business to the carrier community has diminishing returns and low ROI’s compared to leveraged networks that are strategically built to support the needs of both shipper and carrier, with competitive but sustainable pricing levels.
Some studies have shown that as much as 40% of the pricing contracted during a bidding process is not sustainable going into the second year of an agreement. The carriers are simply pricing and hoping that they win the business and that their costing model is accurate.
The Bid Process
The bid process not only burdens the analytical resources of carriers, 3PL’s, and shippers, but it also leads to poor long-term relationships. When the carrier community receives more bids than business, all that can develop is skepticism as to the commitment the shipper is making to that carrier’s volume levels.
Along with poor relationships, shippers must understand that the cost of change in all areas of their company - operations, distribution, customer service, and finance - can all be impacted when either carrier or 3PL partners are changed every other year. Those switching costs need to be seen as hard dollars when compared to the “savings proposition” being sold against the incumbent.
Some of the most successful supply chains and shipping networks are a result of collaborated effort over time, with consistent partners that understand each other’s business; not just their own P+L. A high percentage of shippers turn to reputable 3PL providers to accomplish these tasks, but larger shippers with dollars to invest in analytics and logistics resources have been successful as well.
Building your business relationships will always be better than bidding your business over the long-haul.