This will be an Inflection Year for Freight Rates
One of the most interesting topics discussed by both shippers and carriers at last week’s Carrier Conference, co-hosted by MotorTruck Fleet Executive and Dan Goodwill & Associates, was rate increases. The carrier perspective is that despite all of the cost cutting that was done from September 2008 through to the end of 2009, profit margins have sunk to unsustainably low levels. The shipper position is that with the deterioration in business activity, freight rate reductions were required for many shippers to maintain their profitability.
The economist who spoke at the conference indicated that we are clearly on the road to recovery. There will be volatility so it is going to be a slow and bumpy climb. The Canadian economy is well positioned to respond more quickly than other economies but no country is an island unto itself. Canada is still strongly linked to the U.S that faces significant challenges at this time.
Shippers understand that carriers will be seeking rate increases this year to improve margins. However, one of the messages communicated very clearly last week was that carriers looking for rate relief should not expect shippers to sign a blank cheque. Some shippers are receptive to rate increases but they must be cost justified.
The carrier sales person must come in armed with data on union wage increases, increases in operating costs, fleet upgrade costs and other documented expense increases. For a carrier rep to just walk in and “sing the blues” is not going to be a recipe for success with some shippers. Both shippers and carriers must do their due diligence and have a good knowledge of carrier capacity and the volume of freight flows on each lane, particularly on freight moving between the United States and Canada. With so many trucking companies having left the business or parked trucks, capacity is going to be an issue in certain markets at certain times. On lanes where limited or no backhaul exists, premium or round trip rates may be necessary to move a shipper’s freight.
The carrier panel at the conference addressed the issue of transparency. One carrier executive indicated that his company is willing to open its books to selected shippers and share with them the costs and margins on their accounts. The expectation is that this openness will ultimately translate into much needed rate relief.
Certainly this is not an approach that will work with all shippers and carriers. This demands a level of trust and maturity that is missing with some companies on both sides of this negotiation. It requires a level of honesty and transparency on the part of the carrier that is a new paradigm for many companies.
On the shipper side, there is a requirement for receptivity, integrity and fair play. For those that shop the costs and rates back to the competition, it will ultimately undermine their ability to surround themselves with reliable, durable carrier partners.
For shippers that have worked with their core carriers for some time and where the value proposition and trust have been established, this could be an effective mechanism to reach a fair meeting point on rates. This type of communication can be the foundation for a long lasting partnership