Transportation Management: Weathering the Perfect Storm

With powerful market factors converging to negatively impact transportation costs, capacity-and the bottom line-shippers can apply effective strategies to weather the storm and begin to build a world-class, integrated transportation system.

The 2004 holiday season is a prime example of heightened seasonal capacity constraints. With so many consumer products-especially toys, apparel and electronics-coming in from Asia, the West Coast ports of Los Angeles and Long Beach were clogged with cargo container ships waiting to be off-loaded. Due to a shortage of labor and equipment in the fall, delays were running upwards of a week-more than enough to worry many retailers and reduce their hope of a highly profitable holiday sales season.

Shortages of refrigerated trucks and flatbed equipment are even more severe, with an estimated 15 percent more demand than capacity driving prices even higher. As a result, these carriers have become more selective in the contracts they accept and do not hesitate to turn down unprofitable or challenging loads. For this reason, just-in-time manufacturers try to lock up capacity guarantees as early in the cycle as they can. Others typically find themselves competing for carriers to get their freight covered at reasonable prices and within reasonable time frames.

The Impact of Carrier Challenges on Shippers
It is not surprising that the simultaneous convergence of these carrier issues is making life exceedingly difficult for shippers, both globally and domestically. According to a recent article by AMR Research industry analysts Greg Aimi, Lora Cecere and Joe Souza: "The global and U.S. logistics infrastructure is stressed, and there are no signals that significant relief will come in 2005. In fact, indicators show it will get worse before it gets better…Getting product to store shelves has never been harder."

The constrained capacity in the industry has changed the traditional relationship between shippers and carriers significantly, with carriers "in the driver's seat" as to which companies they choose to work with. More and more, larger carriers are working smarter and adopting a selective approach-opting for the most desirable business and turning down less profitable loads. And profitability is not just determined by the rate the shipper will pay, but is affected by all the “softer" issues associated with a load, especially issues that may affect a driver’s happiness.

As a result, manufacturers and distributors are casting about for solutions that can help them maintain profitability and customer service levels despite the capacity constraints, longer lead times, escalating transportation base rates and fuel surcharges. Many are frustrated in their efforts to do "business as usual" and are instead experiencing increased turndown rates and more requests from carriers regarding “softer" load issues, even from long-time transportation partners.

Additional shipper "pain points" arising from ongoing carrier issues include:

  • Increased difficulty in negotiating strategic and reliable, long-term contracts with preferred carriers.
  • Decreased ability to establish consistently dependable transportation plans and budgets.
  • The necessity to expend significant administrative time to find and evaluate new carrier partners and alternative transportation modes-as well as in preparing RFQs, evaluating bids, negotiating terms and rates, and monitoring carrier performance.
  • A surge in the number of distressed and/or expedited shipments required because of unforeseen carrier constraints leading to load turn-downs.
  • Lack of visibility and control in meeting customer service quality standards relative to on-time deliveries, leading to increased customer dissatisfaction and, potentially, lost orders.
Part II: Strategies for Weathering the Storm New Strategies for Transportation Procurement
Optimized Transportation Procurement.
  • Communicate directly with transportation providers to supply detailed information about the freight and its requirements: expected volume, frequency, surge seasons, delivery locations, preferred lanes, pick-up and delivery times, special instructions, etc.
  • Receive direct responses from carriers to procurement bid requests through a Web-based portal-eliminating communication lag times and the efforts needed to collate the data from multiple carriers.
  • Analyze and evaluate multiple carrier assignment options across multiple lanes, considering factors such as carrier’s capacity, cost, and reliability-while examining trade-offs between company transportation goals and constraints against overall transportation cost.
  • Award contracts and prepare the optimal routing guide for execution.

Effective transportation procurement processes empower shippers to take control of the complex processes involved in selecting carriers. Effective strategic procurement is the first step towards transportation optimization. By automating the bid process for both shippers and carriers, shippers gain better responses and service in tapping into available capacity, as well as more favorable rates. Clear communication about expected freight and its requirements means that carriers respond with their best rates.

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