The Art and Science of Freight Carrier Selection - Phase 2 – Execution
In the previous blog, I suggested that shippers should conduct an audit of their freight operations in order to craft a strategy to guide the carrier selection process. A set of questions were posed to help you develop your strategy and clarify the objectives of your freight procurement exercise. The objectives should also be based on an analysis of your freight spend data and your freight rates. In the case of the latter, you should benchmark your rates as a starting point before going to market.
In order to execute the carrier procurement exercise, there are a number of critical steps that need to be followed. They include:
1. Capture a year’s worth of shipping data
Share this data with your current and prospective business partners so they have a good insight into the full scope of your shipping activities and the major lanes that you serve. This will allow them to prepare rate proposals that are focused specifically on your business.
2. Cast a wide net in seeking out prospective carriers
Even within a very specific geographic region, there are truckload carriers that provide very short haul service, others that need freight to and from specific states or provinces and others that are looking for longer haul traffic. Some carriers need head haul or back haul traffic on certain lanes while others do not. Make sure you include as wide a group of carriers as possible including some carriers with whom you have not done business in the past. This will make your procurement process is as competitive as possible and increase the opportunities for your company to save money. Of course, look for every opportunity to create round trips and continuous moves that will further reduce costs.
Don’t forget to include alternate modes, where practical. You may be surprised. Some of your lanes may be attractive to service providers in modes (e.g. intermodal) that you may have not used in the past or that you might not think can be rate competitive (e.g. shifting from rail to truck). In view of the current state of the freight market, these options may now be price and service competitive.
3. Negotiate over multiple rounds
There are some carriers that may not be familiar with where market rates are at on certain lanes. Meet with the short-listed carriers in person and conduct your procurement exercise over multiple rounds. This will ensure that all carriers know where they need to be to stay competitive. It allows you to direct the higher quality carriers to where they need to be in terms of price. This places you in a better situation to not only save money. It also allows you to upgrade the quality of your service providers.
4. Confirm Capacity and perform Due Diligence
With so much capacity leaving the market over the past year, it is important to ensure that the carriers you select can handle your business volumes and meet your service requirements. If you are unsure of certain companies, check their references and give them some trial shipments.
5. Give special consideration to your incumbents
In many markets across North America, there are carriers that are very dependent on the businesses in that local community. As long service providers, your incumbents should be given special consideration, if they have been doing a good job. This is where multiple rounds of negotiations are helpful. They allow you as a shipper to see what the market rates are on certain lanes. This then helps you to guide your incumbents if their pricing is not consistent with market rates.
6. Communicate your KPI’s
Let the carriers know the Key Performance Indicators (KPI’s) or SLA’s (Service Level Agreements) that are important to your company so they know in advance how their performance will be measured. In addition to the standard items such as on-time pickups, on time service, load refusals, billing accuracy and claims, include specific variables that are relevant to your specific business (e.g. unloading time at construction sites).
7. Sign multi-year agreements
The agreement should include all the standard terms and conditions, rates, the fuel surcharge formula, the KPI’s, the terms of the contract and the renewal process. As we come out of the current recession, there are a number of carriers exiting the market and others that have cut back on capacity. As a result, you should be signing multi-year agreements with quality carriers at fair, but not necessarily the lowest rates. It is time to take a longer term horizon and protect your company from potential capacity shocks that may lie ahead.
8. Conduct implementation meetings
Conduct implementation meetings with senior operations personnel from your carriers to ensure all pick-up and delivery procedures are well communicated and understood. Phase out the non-performing carriers in a methodical way. Plan for success by making sure all of the affected people in your business and in the businesses of your customers and vendors are aware of the changes you are making. If necessary, arrange meetings with your customers and your carriers’ personnel to make sure their needs are met.