The Value of a Shipper Consortium | Peer Collaboration for Strategic Innovation
June 26, 2020
When shippers operate in a silo, they typically have no one to discuss their transportation issues, ideas, and opportunities with except for the carriers that are providing them a service in the first place. This makes conversations with the carriers inherently biased when it comes to difficult issues that both parties do not agree on. As a result, many shippers seek strategic collaborative relationships by forming consortiums where they can discuss their transportation service issues to better understand and resolve these matters.
Types of Collaborative Shipper Groups that Solve Industry Challenges
There is a wide variety of groups that foster shipper collaboration and help companies navigate their transportation issues, each includes different players and serves different purposes.
Industry-Specific Shipper Groups
The most common shipper group is usually found inside a trade association for a specific industry, like steel, fuel, industrial minerals, or wheat. These trade associations are usually located in Washington, DC, so they can lobby Congress and the pertinent federal regulatory agencies. Their focus is usually on the primary issues that occur in their industries like laws and regulations about trade or how their products are made.
However, these groups usually have a transportation committee, or even a rail committee, that discusses and keeps track of a secondary issue that usually centers on one of their members’ highest costs.
The advantage of this type of transportation group in a trade association is the members are all manufacturing or providing the same products or commodities making discussions about their transportation experiences more relevant. This way, each member can fill the other members in on what is going on in its world and the challenges and solutions it has found.
Transportation-Specific Shipper Groups
Another type of shipper group is one that deals strictly with transportation issues. This type of group can be focused on transportation in one industry or include shippers from a wide variety of industries. The advantage of this type of group is it focuses strictly on transportation issues as opposed to a wide variety of issues that trade associations usually cover.
For example, The Mercury Group is an annual event hosted by Breakthrough that provides a platform for its clients to make informed, data-driven decisions in their supply chain. Using network data, the Mercury Group advances ideas and knowledge to help shippers make strategic choices. It allows shippers to share challenges they have resolved and opportunities they have developed to produce conversations at the meeting that lead to new ideas and solutions in the transportation field that would not occur but for this forum.
Shipper and Provider Consortiums
The last type of group that a shipper may get involved in would also include the transportation providers as well. The plus side of this type of group is you may create stronger business relationships with your carriers and be able to directly resolve issues inside the group. However, the downside is shippers may feel constrained from complaining about their carriers’ practices if they are in the room.
Rail Shippers Have a Unique Relationship with Carriers
I have the most experience in the rail industry where the relationship between railroads and their customers can be somewhat unique.
Market Power Can Result in Contentious Relations
It is one of the few industries where the provider’s relationship can be extremely contentious at times with its customers. This phenomenon occurs because railroads in certain circumstances have market power over their shippers unlike the diverse playing field seen in the trucking industry.
This advantage that railroads have can cause customers to feel they are being treated unfairly when it comes to rates and service. This perception is certainly widespread amongst rail customers who often publicly complain about the way they are treated by the railroads.
Moreover, rail shippers believe that railroads have obtained even more market power because the industry has undergone significant consolidation since the early eighties. There were about 40 Class I railroads in 1980, and now there are only seven in the US. Many shippers and economists believe that this consolidation has led to a duopoly on the eastern and western halves of the country decreasing the amount of competition among large railroads.
Rail Shipper Groups Foster Open Communication
Because of this market power and shippers’ need for rail service, many shippers are reluctant to engage in open communication about rail problems to their economic rail regulator, the Surface Transportation Board (STB). They are also wary of making complaints in other informal public forums in fear of retaliation by the rail carrier. While railroads deny that they would ever retaliate against a customer for complaining to the STB or otherwise, many shippers certainly perceive that this would occur based on testimony before the STB.
Accordingly, trade groups or rail shipper groups can provide some support for these individual companies by allowing them to discuss as a group. This way an individual shipper feels less vulnerable when these challenges are public.
A Future Involving Strategic Collaborations Among Shipper Groups
Having a forum to discuss specific rail transportation issues is valuable to companies that participate. In these groups, they can discuss what is bothering them with their rail service and see if other companies are having the same problems. This can lead to guidance on how to handle matters based on others’ experiences and advice in this setting. It can also lead to a collaborative position on an issue that can be presented to Congress or the STB.
These shipper consortiums can raise a common goal before the appropriate regulator and hopefully obtain improvements in the law. Most of these groups have hired experts and lobbyists who can help make these changes come about.
Shipper consortiums are a valuable investment for companies looking for solutions for their transportation challenges. Many large companies can have transportation spends in the 100s of millions of dollars. Therefore, it makes sense to become involved in these groups that can lower these costs and improve their service.