Moore on Pricing: Re-imagining the shipper-carrier relationship

I recently had the honor of facilitating workshops for large shippers and their current and prospective carriers in the midst of major contract RFPs and renewals.

By ·

I recently had the honor of facilitating workshops for large shippers and their current and prospective carriers in the midst of major contract RFPs and renewals.

It was terrific to see private conferences where a shipper and multiple carriers openly discussed the shipper’s business and really thought through how best to find a solution. These types of events enable the selection of “best fit” partners based upon complementary networks and business cultures. 

For companies that are serious about sustainability and creating “mutual incentive,” an ideal solution is to change to a new contract model that makes cost transparent and establishes a minimum base margin and incentives for innovation. This, of course, means ripping up the old procurement-driven methods, killing reverse auctions, and investing time in learning new partnership-building methods. 

Kate Vitasek at the University of Tennessee has multiple books out on “vested outsourcing” and the “vested way” of contracting. I recently spoke to Kate about “vested transportation” as a concept and she agreed that this area really needs a new model.

She shared stories of shippers who burned out their top carriers by beating them up on price and later found themselves seeking service from second-tier service providers. According to Vitasek, what would enable a mutual partnership arrangement is the ability for carriers and shippers to flex in their daily transaction prices—even on a shipment level—to reward innovation and creativity in capacity utilization.

This means throwing out the fixed-rate tables in our TMS tools and having machines and people interact much like the airlines systems do on capacity-available pricing. These types of models and web-based tools are coming to market. 

Imagine a service provider having shipping forecasts from the shipper so equipment location and capacity could be planned. Imagine the carrier flexing pricing to react to capacity shifts. Image a single source for the shipment price as we have in passenger air and parcel—this would reduce pre- and post-auditing expense and allow for faster settlement.

Or image the carrier knowing the cube of pick-ups so routing and final delivery can be planned even as the products are being picked up. In fact, carriers continue to tell me that better information in these areas saves them money. 

Shippers need to step up their game to help the carriers with information that in turn can provide information on transit and delivery. And as lead times shrink and performance metrics make the difference for buyers in evaluating suppliers, those who rely on carriers to have flawless operations need confirming data—these are the shippers who will be most competitive in the market. 

They need carrier partners in executing their strategy; thus, the planning workshops with full network disclosure and transparency in target areas such as service, safety, and cost act as a first step in building new, long-term, more dynamic contracts. These agreements are designed to flex with the changes in either the shipper’s or the carrier’s networks. 

Breaking the cycle of reverse auctions and arms-length “commodity buying” will be tough. However, other areas of logistics, such as warehousing, technology, and value-added services are blazing the trail. 

I believe we can envision this change for the huge transportation services market, starting with dedicated carriage and then with truckload and less-than-truckload eventually following suit. I look forward to encouraging this trend.


About the Author

Peter Moore
Peter Moore is Adjunct Professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [email protected]

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!

Latest Whitepaper
The View from the New “Single Window”
The single window, officially known as the "International Trade Data System," operates via the Customs and Border Protection (CBP) agency's Automated Commercial Environment (ACE) platform, and serves as a single point of contact for all trade filings.
Download Today!
From the March 2017 Issue
WMS vendors are stepping up to the plate and developing functionalities and solutions that meet the complex needs of today’s companies. Our top analysts take a peek into these developments and discuss the DC of the future and the software that will support it.
5 Supply Chain Trends Happening Now
2017 Warehouse/DC Equipment Survey: Investment up as service pressures rise
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
2017 Trucking Regulations & Infrastructure Update
In this session our panel brings shippers up to date on the state of transportation regulations. Discussion will revolve around regulatory reform, aspects of the federal highway bill and what the transportation landscape looks like in the early days of the Trump administration.
Register Today!
EDITORS' PICKS
LM Exclusive: Major Modes Join E-commerce Mix
While last mile carriers receive much of the attention, the traditional modal heavyweights are in...
ASEAN Logistics: Building Collectively
While most of the world withdraws inward, Southeast Asia is practicing effective cooperation between...

2017 Rate Outlook: Will the pieces fall into place?
Trade and transport analysts see a turnaround in last year’s negative market outlook, but as...
Logistics Management’s Top Logistics News Stories 2016
From mergers and acquisitions to regulation changes, Logistics Management has compiled the most...