No one likes surprises; prepare your CEO for Rising Freight Costs!

Last week was an interesting week. On Monday, I was in Orlando taking part in a panel that addressed 200 transportation and logistics professionals at an industry conference. As part of our panel discussion, we highlighted some sobering trends in transportation that could result in 15% to 20% rate increases for shippers over the next three years.

There are some big issues on the table for both carriers and shippers. So in closing the panel, I asked the audience whether they were a.) aware of these issues and b.) whether they agreed that these issues could lead to much higher rates. Everyone raised their hand to each of these questions. Then I asked how many people were sharing this information, and the possibility of increased rates, with their company’s senior executives. There were very few raised hands.

The next day, while attending the ProMat Conference in Chicago, I had lunch with some Presidents and CEO’s of companies who were exhibiting at the conference. As we went around the room and talked about business issues, I highlighted some of the facts that our panel had covered the day before and mentioned the possibility that their companies could see their freight rates go up by 15% to 20% over the next three years. Some CEO’s wanted to know why their transportation people weren’t bringing these issues to their attention. After all, freight costs can be a big deal for companies like theirs—and yours.

So let me ask you a question: Are you keeping your C-Level executives informed about transportation issues that could potentially impact your supply chain and increase your freight costs? Here are three reasons why you need to take this question seriously.

First, your C-Level executives hate unpleasant surprises. When surprises occur, CEO’s are likely to ask:  “How did it [the surprise] occur? Why did it occur? What are we doing to prevent it from hurting us?”

As an example of an unpleasant surprise, look at what happened recently at the West Coast Ports. Everyone had access to the same information. Some companies acted on that information; other companies believed that things would eventually work out and there would be minimal disruptions. Transportation professionals who failed to act found themselves having to explain to their C-Level executives why their inventory/products were stuck in containers on ships with no timetable for when those ships would be unloaded.

Second, one of my CEO buddies likes to remind his associates that, “Bad news doesn’t age well.” He brings this up to stress the importance of sharing information on a timely basis, so that his company is proactive in addressing threats to their business. What kind of information should you be sharing? Why not start with the fact that your truckload rates will go up by as much as 15% to 20% over the next two to three years unless your company is proactive and willing to change certain things?

Before asking, “Is that possible?” consider that in the past month several truckload carriers have announced that they are significantly increasing their compensation for drivers. Additionally, while fuel costs have decreased, truckload carriers are experiencing cost increases in virtually every other part of their business. Add it all up, and you can expect truckload carriers to seek sizeable rate increases—and get them because of their advantage in today’s seller’s market.

The third reason you need to talk to your CEO is because if you don’t, others will. Based on experience here are some things I have learned about this:
1. You can’t hide from reality. For transportation and logistics professionals, here is your reality: You must reduce costs. That’s difficult when your carriers are seeking higher rates. Reducing costs may require changing practices and processes. But companies won’t change until they understand why and how they need to change. And the people that may have to sign off on those changes are the C-Level executives. 

2. There is no job security, so what do you have to lose by telling the truth? In Orlando, we talked about some sobering trucking and transportation trends. Here is something else that is sobering: All of this information is in the public domain. If your costs are going up and your freight budgets are blown, here is what your C-Level executives want to know: “What happened? What are we doing to address the situation?” 

If you can’t answer, or if you are afraid to answer these questions, then don’t be surprised when your CEO calls in a consultant to help them address what they need to do to reduce their costs. That is the essence of the “if you don’t, others will” principle. Your CEO isn’t going to accept poor results or unpleasant surprises. So here is your choice: Give them the information and the answers they need, or say “Hello!” to the consultants they hire.

In order to help you start a dialogue with your C-Level Executives, we have prepared the C-Level Spotlight. It’s a Cliff’s Notes version of important things that are happening in transportation; things that they need to be aware of so that together you can come up with a game plan for how your company can have a world class game plan for managing your transportation and supply chain costs—and avoid unpleasant surprises.