Returning to Procurement Fundamentals for Stronger Freight Networks
November 19, 2020
Prior to the pandemic, the hottest topics in transportation and supply chain almost unilaterally surrounded the excitement of new technology. _Visibility platforms, blockchain, predictive analytics, track and trace, artificial intelligence, final-mile solutions, and so forth. _Though the news coverage has shifted, the hype around the future applications of these buzz words remains.
It is exciting to see a historically slow to adapt industry flooded with investment into its future. When decades-old practices—like the annual RFP—are still widely accepted as a mainstay in operational strategies, any movement toward cultivating new strategies and perspectives is a breath of fresh air.
But the hype has become a distraction from a few key principles that will continue to remain true for successful transportation practitioners.
Shippers are economically responsible for the movement of their goods.
Transportation is not a commodity; therefore, pricing should consider performance metrics, reputation, and relationships.
Performance expectations should be defined and upheld in contracts.
Regardless of how complex, high tech, or intelligent the supply chain startup and digital platform landscapes become, shippers looking to drive out costs and create efficiencies in their network need to keep these principles central to their strategic planning processes.
#1: Shippers are economically responsible for the movement of their goods.
The supply chain is complex and involves a long list of stakeholders, service providers, commodities, and materials, but at the end of the day, the shipper—manufacturers, retailers, food and beverage companies, CPG, pharmaceuticals, and more—foots the bill.
That’s why it is important to choose solutions that keep shippers in the driver’s seat. Shippers create demand for capacity, so in the supply and demand balance, freight needs should remain central when calculating market prices.
#2: Transportation is not a commodity; therefore, pricing should consider performance metrics, reputation, and relationships.
The transportation rate environment is often looked at like a straightforward supply and demand economics problem. The balance between how much freight must move and the number of drivers and trucks that are available to move them determines if rates are high or low. This trend operates on a continuous and familiar cycle for transportation practitioners. At any given time one side of the shipper-carrier relationship stands to benefit from the freight rate environment.
While this concept makes rational sense, the reality of the trucking market is incredibly more nuanced. If shippers only look at bottom line costs when selecting carrier partners and seeking spot solutions, they fail to consider compliance metrics, natural fits in their networks, and carriers who uphold similar sustainability commitments.
Trucking is not a commodity, so linehaul rate calculations need to encompass all of the factors that contribute to successful freight strategies.
#3: Performance expectations should be defined and upheld in contracts.
The very fabric of the transportation industry is built upon freight contracts. But when contractual agreements are put in practice under real market influences, it is widely understood that these agreements will not be upheld perfectly. To what degree, and under what circumstances contracts fail will vary, but both shippers and carriers are accustomed to the process of creating an agreement, waiting to see if it is adhered to, and securing a secondary option to cover that freight when the time comes.
Although this is commonly accepted across the industry, this demonstrates a fundamental misalignment in the way we collectively think about capacity relationships.
Regardless of the price environment, it is better for both shippers and carriers when they can find partners that optimally fit into their own network footprint and can deliver on that lane over time. When these matches are made, shippers have confidence that their goods are moving on time and for a stable price point. Carriers, on the other hand, have the assurance that they have freight to cover, eliminating empty miles and truck downtime.
Freight Networks of the Future Will Make a Return to Procurement Fundamentals.
All the data and technology in the world cannot fill the gap of a flawed system.
These solutions are necessary because freight networks are always a moving target. Any consistency that shippers and carriers can find at the contract level in an otherwise volatile market will lend itself to better budget and operational stability over time. When we shift our sights to the shiny new object, we lose sight of the underlying goal of transportation.
Goods need to move. Strong partnerships lead to better outcomes for all stakeholders. The future of transportation must adhere to these three enduring principles.