Earlier this year I wrote about courage, patience, trust and loyalty in logistics, based on a shipper’s gutsy decision on transportation rates. Adrian Gonzalez originally brought this up in an ARC Logistics Viewpoints newsletter/blog post in February.
He talked about how a Fortune 500 company could have saved a stack of money in transportation costs by putting its freight out to bid. But the company (which must remain nameless) instead decided to honor its current rates with carriers when it could have easily squeezed them for lower rates.
The question then – and now for that matter – was why a company would willingly choose to risk its bottom line health in this manner? Gonzalez explained the company “knows that capacity will tighten again down the road, and when that day comes, it expects its carriers to maintain their commitments to them and not abandon them for other shippers offering a cent or two more per mile.”
In an update this week of this interesting situation – both from a business and a Vested Outsourcing perspective – Gonzalez notes: “Well, that day has arrived. Capacity is starting to get tight again in certain markets and rates are starting to rise. Did this shipper make the right decision?”
“The jury is still out on whether our strategy has worked or not,” the logistics executive at this company told Gonzalez. “We don’t know yet if we are going to have an advantage [relative to other shippers] or if carriers are going to decide that the temptation for quick outsized profits is just too hard to resist. How the carriers respond will ‘train’ the buyer for the next time this changes.”
What is known is that transportation rates across all logistics modes, but particularly on the part of ocean carriers, are rising dramatically just as the economy is struggling to get back on its feet and just as retailer and manufacturer inventories need to be replenished.
“It’s a struggle to get carriers to think long term,” the company executive told Gonzalez. “I’m willing to discuss different contracting terms and continuous improvement ideas with them, such as putting in price mechanisms that adjust over time and doing things at our end to turn their equipment faster, but when it gets to that second or third meeting, they just don’t know what to do.”
Gonzalez asks whether this means that many carriers lack the management know-how and sophistication to engage in more strategic and collaborative relationships with shippers. If you look at the history of shipper-carrier relations, the answer is yes. But many shippers are just as guilty of this lack of sophistication, a failure to recognize the beauty of a ‘What’s in it for We’ framework and of instead playing the strategic same old what’s-in-it-for-me muscular game.
“This experience illustrates once again how difficult it is to create vested outsourcing relationships,” Gonzalez writes. “As I’ve said before, vested outsourcing (aka performance-based outsourcing) requires a mind shift that will be difficult, if not impossible, for many 3PLs/carriers and customers.”
Difficult? Most definitely. Impossible? No. I believe the day is not too distant when shippers and carriers will realize they can prosper by getting away from treating transportation purely as a commodity (or transaction) and view it instead as part of a mutually beneficial outcome that’s based on collaboration.
One gutsy company is a great start.