For shippers, one of the keys to good transportation management is having a balanced carrier portfolio. Carriers vary in size, regionality, and key capabilities. Like any good investment strategy, shippers should strive to partner with a variety of different carriers to optimally serve their transportation networks and mitigate risk. Determining the right mix of carriers is challenging, and shippers often find themselves wondering, ”what does a healthy, balanced carrier portfolio look like? How do imbalances in carrier selection put me at risk? How could that risk hurt my shipper-carrier partnerships in the long run?”
Logistics organizations must first and foremost bring goods to the market to meet customer demand, so many teams focus the majority of their time and energy meeting operational requirements. Because of the demands of the complicated supply chain landscape in 2019, these transportation teams may not have the resources to fully analyze unaddressed risks in their networks or gaps in carrier capability.
Such shippers make up for this by forging and relying on relationships with carriers and brokers over long periods of time. Years after an initial strategy begins a carrier may no longer be an optimal fit for a shipper’s network—or vice versa—yet the relationship and loyalty trump to both parties’ detriment.
Even in shipper/carrier partnerships that seem functional, however, there could be unaddressed inefficiencies and added costs hiding due to these four mistakes made during carrier selection:
1. Failing to Re-evaluate Longstanding Relationships
Many shippers have a small group of core carriers who handle most of their freight. In theory, fewer relationships to manage means added simplicity and the opportunity to strengthen the partnership with each carrier. Conversely, inherent risk lies in shipper strategies that become too reliant on too few carriers.
If the shipper’s lane mix changes dramatically or the shipper experiences rapid growth, those carriers may not be equipped to meet changes in demand. A solid routing guide requires depth, and if two carriers rejecting a tender request means the freight is headed for the spot market, shippers can experience mixed cost and service as a result.
Long-term relationships are often beneficial to shippers and carriers because they can choose partners who align strategically, but like any supplier relationship, they must be consistently evaluated to ensure fair expectations and terms are in place.
2. Too Many Low-Cost New Carriers
On the other hand, shippers can introduce added risk to their networks when they become overeager to award freight to low-cost network newcomers. Relationships with new carriers should be monitored carefully, as there are many chances early on for the shipper and the carrier to have unmet expectations.
Awarded lane volume could fail to materialize. The carrier was unaware of special requirements at a facility. The transportation team did not get the carrier properly set up for payment. Any number of challenges could arise and both shipper and carrier experience negative network performance as a result. Additionally, the shipper’s customers waiting for end products and relying on that freight could experience a decline in service.
Balanced carrier selection means that the shipper’s core carriers—with established expectations, performance, and relationships—are supported by a segment of identified growth carriers and brokers that are actively managed and measured.
3. Imbalanced Use of Brokerage
A shipper’s usage of brokerage is another key area where imbalances can develop. Brokers play a key strategic role in providing shippers with reliable routing guide depth, quality service, and a solution to unpredictable, “out-of-network” freight volume. Even on planned and recurring lanes that travel to undesirable locations, require long stints of deadhead, or fail to provide natural turns in a carrier’s network brokerage can be a viable solution to secure capacity.
In favorable markets, however, the convenience of brokerage can become a crutch for shippers using it when contracting carriers would be far more favorable. Shippers should carefully examine where they use brokerage most frequently and determine whether there are opportunities to contract a stable rate with an asset-based carrier or they should maintain brokerage presence on difficult to cover parts of the network.
4. National and Regional Carrier Network Misalignment
A misconception some large shippers have is that only national carriers are properly equipped to handle the size and scope of their freight demand. This is easy to misconstrue when comparing a full-network map of a shipper with that of a national carrier, but if you drill down to a localized level, more granular optimization opportunities emerge. National carriers may have a wider reach, but even if they service a certain lane, it may not fit into their network naturally.
Small to medium-sized carriers with a focus on regional service are often a good fit because they have active networks that surround a handful of key lanes. National carriers may be willing to send trucks to these areas, but this often comes with added cost to pull a vehicle out of denser network volume. The right small or medium-sized regional carrier is more familiar and more present along these lanes and who could additionally provide the shipper with cost and service benefits.
Matching the right carrier to the right lanes allows each carrier type to play to their strengths, with efficiencies for everyone involved.
The Right Strategy Takes Planning
No matter what carrier selection strategy is put in place, it must be continuously monitored and adjusted as shipper and carrier networks change. Understanding the common pitfalls and oversights that occur throughout the carrier process is the first step to forging a strategic plan that makes the most optimally functioning transportation ecosystem a reality.