Leveraging SHIPPER-CARRIER Partnerships for Total Cost Savings and Service Improvements
by Mike Starling
What is your strategy for renegotiating carrier contracts? Confrontation or Collaboration? Lowest Cost or Complimentary Compromise? Squeeze the Bastard or Rational Cooperation for a Win-Win Solution? My point here is that it is not unusual for a shipper to mistakenly view a negotiating tactic as a renegotiating strategy.
This is often the result of executive management pressure on the transportation manager to do something now to reduce freight expense. The result? Actions taken tend to be reactionary and fail to establish a well thought-out strategy prior to engaging the carriers to attack cost reduction and service improvement as mutual concerns.
Picture this:
Two kids are on a playground, on the teeter totter. Kid One on the left represents the shipper. Kid Two on the right represents the carrier (cost and service). The balance bar in the middle, the fulcrum, represents negotiating leverage.
When the shipper perceives that the situation is out of balance, typically one of two things have happened. The carrier cost and/or service has shifted the fulcrum to the right, providing favorable leverage and tipping the balance in favor of the carrier, and to the disadvantage of the shipper. This change in the partnership balance is due to increased cost and/or decrease in service on the carrier’s part. End result: the shipper’s perception of the carrier is diminished, so the shipper seeks to correct the situation via re-negotiation of the carrier contract.
When the carrier perceives that the situation is out of balance, typically one of two things have happened. The shipper expense and/or service demands have shifted the fulcrum to the left, providing favorable leverage and tipping the balance in favor of the shipper, to the disadvantage of the carrier. This change in the partnership balance is due to the shipper squeezing the carrier to reduce freight or other rates or demanding service performance that increases the cost to the carrier beyond what the shipper is willing to pay for. The carrier’s perception of the shipper is diminished, so they seek to correct the situation by renegotiating the carrier contract — and may deliberately reduce service or abandon lanes to force renegotiation if a shipper is refusing to negotiate.
Consider a different strategy:
Consider another teeter-totter. On the left sit both the shipper and the carrier with current cost and service requirements. On the right sits the Customer with his service demands.
Typically, leverage rests with the Customer on the right. The challenge is for the shipper and carrier to work together to shift the fulcrum to the left in order to find a balance between Customer demand and shipper-carrier delivery expense.
Delivery cost requires both carrier delivery service expense and shipper freight expense to meet or exceed Customer demand. The overriding goal is to find the best total delivery cost that strikes a balance between shipper-carrier delivery expense and Customer service demand.
The mutual goal in this situation is for the shipper and carrier to agree to such a strategy; i.e., mutual effort to reduce total cost and work together to define a service process/capability that meets Customer demand and lowers the total overall expense for both the shipper and carrier.
By defining such a strategy—one that involves both the shipper and carrier aligned and focusing on cost reduction and service improvement to achieve a mutually beneficial, agreed-upon solution—defining the tactics necessary to achieve the desired result becomes a self-fulfilling prophesy.
Bottom line: if you want to implement the strategy described above, then save time, effort, and resources and achieve the desired goal by utilizing a seasoned supply-chain coach, one whose experience base comes from working on the shipper’s side of the desk. One who can bring both interested parties to the table — not as adversaries, but as interested partners — to work together to achieve mutually beneficial goals, reducing total delivery cost and improving delivery service.
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