Cooperation + Communication = Lower Costs

When shippers and motor carriers cooperate, it can make the shipping process smoother, more efficient, and more cost effective.

By Toby B Gooley -- Logistics Management, 1/1/1999

Shippers are accustomed to rating and evaluating motor carriers on how well they measure up in the areas of cost, service, and reliability. With increasing frequency, carriers are turning the tables and rating their customers. Typically, they look at how their clients measure up in areas ranging from speed of operations to how promptly they pay their bills.

Carriers "rate" their customers' performance for two reasons. First, if a carrier is to meet customers' service demands, it must identify and then eliminate any obstacles to efficiency. Carrier executives say that the inefficiencies in some shippers' loading and receiving operations make it difficult, if not impossible, for carriers to meet their time and service commitments.

The second reason is that it costs a carrier more to serve an inefficient shipper, particularly when shipper practices tie up equipment and drivers. Carriers must quantify those costs if they are to charge rates that reflect their actual cost of doing business with a particular customer.

The information on costs can help carriers make a case for higher rates. Perhaps more important, identifying inefficiencies in operations is the first step in cooperative efforts to eliminate them, which can reduce both carrier and shipper costs.

Dock Delays Raise Costs

Asked what shippers could do to reduce motor carriers' costs, carrier executives zeroed in on two topics: improving loading and unloading practices, and speeding driver and equipment turnaround.

"The area of greatest opportunity is when shippers help us [in] getting waste out of the system," says Robert E. Low, president of truckload carrier Prime Inc. of Springfield, Mo. "Getting equipment unloaded in two to three hours is pretty efficient. Anything beyond four hours of unloading is excessive and wasteful."

Appointment systems used by many shippers and receivers can help. But John Lanigan, president of Schneider National's transportation sector, contends that receiving hours in many operations are so limited that drivers often must stay overnight and deliver loads the next morning. That's very expensive for shipper and carrier alike. Extending operating hours could reduce or eliminate that problem, he suggests.

More precise scheduling and better coordination between shippers and receivers could create enormous cost savings, Low believes. He cites what he considers an all-too-frequent scenario: A customer calls a carrier to arrange an inbound shipment. The carrier calls the vendor to make a pickup appointment. Next, the carrier calls the customer's distribution center to schedule a delivery. They're running behind and can't receive the trailer on the day it would arrive. The carrier calls the vendor back to reschedule. The vendor puts the carrier on hold for an average of 20 to 25 minutes while appointment times are rejiggered. "I'm sure about that amount of time because we've measured it," he says.

Low hopes such practices will become a thing of the past. One of Prime's largest customers now is working on an Internet-based appointment system that would allow carriers to select appointment times that match up with shipment departure and transit times.

Every Carrier's Dream

A world with efficient dock operations is every carrier's dream. "[Dock delays are] a huge driver of our costs," Lanigan says. "We get compensated for moving freight. When we're not moving, that unproductive time reduces driver and equipment availability."

Truckload carriers, in particular, argue that other widespread dock practices have to change as well. The most important thing is to "get drivers out of the unloading business," Low says.

Herb Schmidt, vice president of marketing for CFI Inc., a truckload carrier based in Joplin, Mo., adds that shippers that require the driver to unload create headaches for the carrier and bring higher costs on themselves. "We make sure drivers are compensated on an hourly basis while they're loading ... but a driver makes his primary living by rolling the miles, not on the clock," he says. When drivers have to unload, he notes, that time is included in their on-duty hours--time that could have been spent sleeping to meet hours-of-service requirements.

When drivers unload, moreover, their fatigue levels are increased. Not only does that further reduce their availability to drive, but it also increases the possibility of an accident, says Lanigan.

Another shipper practice that increases driver fatigue is expecting drivers to dispose of dunnage. "It's like someone coming in and having dinner, then leaving you the dirty dishes," says Schmidt.

The carrier executives say that another area where shippers can help carriers manage their costs is by sharing information about such things as new-product launches and seasonal spikes in volumes. "If shippers provide as much early warning as possible when something changes dramatically, we can look at the impact on our network ... and decide how we can get more capacity moving in that direction," says Lanigan.

Measuring "Cost to Serve"

Carriers measure their cost to serve individual customers in several ways. Schneider, for example, has a formal program to track activities that affect the carrier's efficiency, says Lanigan. Drivers send in detailed records of their activities, and managers use that information to identify the average time to serve individual shippers.

Prime uses its Qualcomm satellite tracking system to validate the time required to complete such activities as waiting at the shipper's yard, unloading, and receiving final paperwork, says Low. "We have customers where ... we know we're wasting two to three hours to get into the dock, four to five hours for unloading, and one more hour to get the paperwork."

Once they have all that information, what do carriers do with it? Both Prime and Schneider use the data to analyze customer activity quarterly by shipper, receiver, and lane, using a combination of actual data and averages. They share the data with their customers, helping shippers identify bottlenecks and suggesting areas for improvement.

They also use the information to calculate rates that accurately reflect their costs. In general, the more efficient a shipper's operation, the lower its rates.

"We tell them, if we can get to X number of hours for unloading, then this would be the price," Lanigan says. "We show them the potential savings. If it's a big enough impact, they'll say that's worth changing some practices."

As shippers come to understand the importance of speed and the need to retain good drivers, more and more are willing to cooperate and communicate with their motor carriers better, says Schmidt. "Fifteen years ago, about 10 to 15 percent of shipments were problems," he reports. "Today, it's less than 5 percent. ...Customers want to know what they can do to help carriers keep drivers and keep the rates down."