Various published reports appear to signal an end to the recession and to some upswing in freight volumes. The Baird freight index showed year/year growth of 1.4% in January. Truckload, intermodal and carload volumes appear to be firming up. This is not to suggest that we are now in boom times. As reported in an earlier blog, the LTL sector still remains significantly challenged due to the oversupply of capacity and carriers. These reports should be viewed as a signal of a change of direction that will take time to unfold.

In 2009 weak demand and cost reduction pressures from higher management caused many shippers to conduct freight sourcing initiatives. One recent study reported two interesting findings. First, the average rate reduction achieved, across all modes, resulting from freight RFP exercises was 16 percent. Another significant finding was that most shippers intentionally left 40 to 50 percent of their implementable savings on the table. Despite what some have characterized as “frenzied bidding,” many shippers made the conscious decision to not take a significant portion of the potential savings. This strategy was reinforced by some of the shipper representatives who spoke at last year’s Shipper Freight Management Conference, co-sponsored by my company and Canadian Transportation & Logistics magazine.

This begs the obvious question. In a year when the economy was so weak and cost reduction pressures were so strong, why did so many shippers display a reluctance to switch carriers to reduce costs? The answer lies in one important word, relationships. Even in tough times, when the temptation is there to throw valued suppliers “under the bus,” knowledgeable and enlightened shippers took the time to reflect on the value they have received to date, the performance they are currently receiving and took a long look at the road ahead. This is what they saw.

During busier times, the top carriers maintained their performance. They priced their services fairly and did not take advantage of the leverage they had to gouge their clients. They provided their good customers with the extras (e.g. additional trailers, late pickups, visibility, and superior customer service) that helped maintain carrier loyalty. These carriers provided high quality service with the understanding that the pendulum can and did swing. Now shippers have expectations that as the economic fortunes of North America change, their carriers will treat them fairly again. Shippers now expect their core carriers to reciprocate, the essence of healthy, balanced relationships.

Enlightened shippers know that capacity will tighten. It will take time for trucking companies to hire and train drivers to replace those who left the industry. There are signs that this is already happening. As the economy improves and the market for used trucks increases, this may drive some truckers out of the industry.

Harvey S. Firestone, the founder of Firestone Tire & Rubber once stated, “A man with a surplus can control circumstances but a man without surplus is controlled by them, and often has no opportunity to exercise judgement.” Another wise person has said that “knowledge is power.”

As a result shippers should continue to seek out alternative providers that can meet or exceed expectations. They should also take a keen interest in the dynamics of the freight market. There is still great value in performing strategic sourcing exercises, on a scheduled basis. However, shippers should share their plans and data with their key suppliers. They should continue to expect suggestions on how to upgrade or introduce best practices into shipping processes. Based on a combination of performance, trust, and communication, shippers and carriers should seek to build upon the relationships that have been established over time. This will provide both parties with a competitive advantage.