Don’t Get Crushed By the Capacity Squeeze – Five Questions for Your Carriers
These short 5 questions address the business basics, or essential questions that a shipper should be able to answer for every carrier they use.
in the NewsState of Logistics 2016: Pursue mutual benefit May trade between U.S. and NAFTA partners down 3.1 percent UPS reports solid Q2 earnings paced by international and B2C growth AAR reports another week of declining volumes Despite mixed Q2 results, transportation & logistics deal making prospects look bright More News
Truckload carrier capacity is getting tighter as we head into the fourth quarter, and that squeeze is likely to create major financial and operational risks for shippers who are forced to rely on non-core carriers.
As capacity gets tighter, shippers can find it more difficult to move freight through their core carrier network. Outside of your core carrier network, your company may be using carriers you have never dealt with before. These unknown carriers can bring new financial risks to your company and customers if your standby carrier’s operating authority, insurance coverage or safety ratings aren’t up to standards…not to mention the growing threat of fraud and theft.
How does this happen? If we visited your company’s dock, we would likely see ‘hot shipments’ that have to get to your customers as soon as possible. When your company can’t find a carrier to move these shipments, you go to Plan B and start dialing for carriers. If you still can’t find a truck after calling carriers or brokers you have done business with in the past, you have a dilemma. Do you give that shipment to the first available carrier and move it as fast as possible, or do you sit on the shipment until it can be moved by a carrier that you have appropriately vetted?
Let’s be honest. Most companies will choose to move the freight even if means using a carrier that hasn’t been vetted. No one wants to select an unsafe carrier, but if you don’t thoroughly vet that carrier, especially when there are readily available on-line data resources, you are placing your company and supply chain at risk by failing to honor one of the basic Commandments of Business: Know who you are doing business with!
Let’s make this easy. Below is our Carrier Qualification Test. These short 5 questions address the business basics, or essential questions that a shipper should be able to answer for every carrier they use. When considering a carrier outside of your core carrier network, ask does this carrier:
1) Have a valid Operating Authority granted by the FMCSA?
It doesn’t get any more basic than this. The consequences of contracting with a carrier without a valid operating authority are as serious as having an accident with an uninsured and unlicensed driver, especially if their operating authority is not active or has been revoked due to unethical or dangerous practices. The fact that you did not check their ‘driver’s license’ before you allowed them to drive could make you liable along with the carrier.
2) Have current and adequate insurance coverage to meet your corporate requirements?
If your load is damaged or lost and the carrier’s insurance was either not in force or their insurance company denies the claim, you could pick up the tab. Worse, your corporate insurance may not cover this incident either, because of a carrier exclusion. And adequate carrier liability insurance in case of traffic accidents could be as important as adequate cargo coverage.
3) Have a valid contract with your company, or are you relying on spot quotes or a rate confirmation sheet to move this load?
Practically speaking, very few shippers have contracts for 100% of their carriers. All too often, for last minute shippers, carriers and brokers send, and shippers accept a rate confirmation sheet in place of a valid contract.
4.) Have a Satisfactory DOT Safety Rating and acceptable SMS/BASIC scores?
The CSA debate has obscured a basic fact: Metric driven safety systems are here to stay. You do not want to be responsible for putting a dangerous truck on the road—the liability consequences to you can be momentous. The FMCSA, at a minimum, is doing part of your homework for you by helping you evaluate your carriers and your exposure to risk.
5) Have sufficient financial capabilities?
What kind of financial data do you review and verify before selecting a motor carrier? Are you tendering a load worth thousands or hundreds of thousands of dollars to carrier that is financially weak?
For those of you who think: “My carriers can pass this test,” here is a tip. Very few companies can answer “yes” to these questions for 100% of their carriers. An internal auditor visiting your department would likely identify some carriers that don’t pass the Carrier Qualification Test.
Who cares if it is the ‘hot shipments,’ or someone at a DC that caused a bad decision. The failure to exercise due diligence in selecting 100% of your carriers could result in costly litigation and an adverse judgment could run in to the millions of dollars.
Here is some good news. There are a few simple steps to protect yourself from the risks that come with picking the wrong carrier. The first step in the process is a review of exactly what risks your carriers are creating for you by answering the questions above for each of your carriers.
So keep this in mind when facing the ‘capacity crunch’: Every action has consequences, some good and some bad. Minimize your transportation risk by taking advantage of the tools and resources out there to help you manage your risk. The more sophisticated systems automate and customize the information, resulting in minimal time expended on your end and an overall significant cost savings especially considering the potential massive financial burden you can incur by not vetting at all.
About the AuthorMike Regan Mike helped grow TranzAct Technologies to become one of the largest privately held logistics information and freight audit and payment companies in the United States. He is extremely active in and participates on numerous boards of industry specific organizations and is a highly sought after speaker for transportation related topics across the country.
Subscribe to Logistics Management Magazine!Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!
2016 State of Logistics: Third-party logistics 2016 State of Logistics: Ocean freight View More From this Issue