These days, collaboration seems to be an overused word in the world of freight. And collaborative partnerships between motor carriers, third-party logistics firms (3PLs), and shippers are not as mutually beneficial as they seem to be.
John Larkin, managing director and head of transportation capital markets research at Stifel Financial Corp., says that while shippers were all eager to “deepen strategic partnerships” with their trucking providers in early 2015 when fierce winter weather put a crimp in capacity, such partnerships were tossed aside quickly the minute those pressures abated.
“Shippers, in many cases, reverted back to their tried and proven ‘Neanderthal practices’ when supply and demand was loose—conducting auctions and capitalizing on the surplus capacity presently available in the market. Kick them when they are down, so to speak,” Larkin notes.
With collaboration taking a back seat to lower pricing, he adds that fewer shippers reached out to 3PLs for freight transportation help.
As a result, shippers began engaging in opportunistic changes this spring, he explains, as a way to squeeze down transportation and logistics costs that spiked in recent years, thanks to tight supply-and-demand conditions that persisted across vast swaths of the industry.
Together for Survival
Other industry experts argue, however, that can and will change quickly—to the point where collaboration may be necessary to survive and succeed in the business of moving freight.
“Collaboration is not a fad; the more specialized a transportation network is, the more collaboration that is required,” says Dave Belter, vice president and general manager of transportation management for Ryder Supply Chain Solutions. “Collaboration is really the engine that allows shippers, 3PLs and carriers to continuously improve and find ways to better service their customers, meet changing customer requirements, and reduce cost.
“By its very nature, transportation is the link between at least three parties—the shipper, the carrier and the customer,” Belter stresses. “All play a vital role in success, and none can operate in a vacuum. Without collaboration you cannot meet the needs of all.”
Joe Carlier, senior vice president of global sales for Penske Logistics, believes collaboration as a concept is here to stay.
“In the long-term view, we will get to a point in time where we will share resources to help combat the driver shortage, as more drivers are exiting the field than entering it,” he explains. “In this case, more efficiency will happen. Imagine this future scenario: Instead of five trucks from each of the automakers showing up to the same auto supplier distribution center, what if the OEMs collaborated on these loads so there were only one or two trucks arriving?”
Carlier also thinks the increase in regulations governing the trucking industry, such as the mandate to implement electronic logging devices (ELDs) by December 2017, will impact smaller carriers the most and put more pressure on capacity.
“Some of them won’t be able to implement the required technology, and this will create additional consolidation within the industry,” he predicts. “This will result in increased collaboration with the remaining carriers and 3PLs. Keep in mind that consolidation can equal collaboration in some cases.”
Stifel’s Larkin echoes that view, suggesting that this “coming onslaught of federal regulations and the aging of the experienced driver pool” means it will take only a modest supply chain disruption and/or a modest uptick in the rate of economic activity for the driver shortage to once again be the primary driver of a tight supply and demand dynamic.
That’s why the collaborative approach to shipper/3PL/motor carrier relationships pays big dividends, argues Paul Newbourne, senior vice president of logistics operations at Armada Supply Chain Solutions. It allows all of the parties involved to avoid the negative consequences of that dynamic, though not without a lot of hard work.
“Collaboration is a word that, not unlike partnership, gets used quite a bit in our industry but is much harder to execute in practice,” he explains. “Optimizing transportation networks is all about efficiency. Since there are multiple stakeholders in any network, each with their own agendas and objectives, the best way to get the ideal level of efficiency is for these stakeholders to collaborate, i.e., work together for the collective good."
Newbourne says it starts with a willingness to have open and honest communications to discuss challenges, solutions and desired results in an environment where all parties are willing to compromise so that everyone benefits.
“Shippers, transportation service providers, and receivers should consider win-win-win solutions where there are positive gains in efficiency resulting in lower landed cost, better productivity, and higher service levels for all involved,” he explains.
“The [freight transportation] network is under pressure from a variety of fronts that will increasingly make it more difficult for shippers and receivers to enjoy a reliable cost-effective transportation environment: the shortage of qualified drivers, regulatory changes, highway congestion, etc.,” Newbourne points out. “Thus, it is not practical to assume that transportation service providers can on their own find ways to offset the productivity loss implications expected from these industry challenges.”
Only by working collaboratively can there be a greater likelihood that areas of improvement will be identified and corrective actions taken to improve efficiency and mitigate some, if not all, of that productivity loss, he argues.
“Selfishly, we should all want everyone to behave this way since every company is somewhat subject to the inefficiency of the receiver upstream from them,” Newbourne adds. “For example, I can operate a very efficient facility, load within an hour, be driver friendly, etc., but if the truck that’s scheduled to pick up my freight is held up at the prior stop because that facility is not efficient, then I get to deal with the ramifications of late pickup/delivery or having to find spot market capacity to cover the shipment.”
Brian Gibson, who serves as the Wilson Family professor of supply chain management and executive director of the Center for Supply Chain Innovations at Auburn University, notes that many shippers, especially in the retail sector, are transitioning their transportation thinking for similar reasons.
“It’s no longer just about the right-priced product in stock at the stores but the speed to market. We’ve got to get it to market, even if sometimes it’s two to three days before our competitor because then we’re going to get the sale,” he explains. “It’s because they [retailers] are really feeling that customers are far less loyal today than they were in the past. Therefore … the supply chain becomes a competitive differentiator as opposed to that loyalty. It’s an interesting shift away from marketing and sales orientation to a supply chain orientation for some of these retailers.”
Armada’s Newbourne adds that a more collaborative approach allows for more cost-effective access to such high service-level capacity.
“We consistently see very high tender acceptance and on-time pickup/delivery performance, rate inflation below industry averages, and a marked drop in nonfuel accessorial costs” by taking a collaborative approach with motor carriers and 3PLs, he says.
“Our shipper and receiver stakeholders have reported improved dock efficiency due to better on-time arrival of carriers and are a direct beneficiary of the lower landed costs that have resulted from removing inefficiency in their networks,” Newbourne explains. “Our service providers report that they see less dwell time for their drivers and equipment as well as improved productivity, especially when we can eliminate nonproductive transit days or reduce drop trailer dwell time.”
Ryder’s Belter agrees with that sentiment. “The deeper the understanding of the service requirements of the shipper’s supply chain, the more effective the collaboration,” he says. “For example, one of our customers was having issues with on-time pickup and delivery from a third-party warehouse. This was due in part to the fact that the warehouse had a very difficult pickup process, with restrictive hours and a requirement for carriers to have multiple pieces of information just to make the proper pickup.”
And if any one step in the process failed, the pickup or delivery didn’t get done, Belter emphasizes.
Yet generating that kind of success often requires a changing mind-set, says Armada’s Newbourne.
“Change management is the biggest roadblock, as collaboration requires a change in mind-set and behavior from ‘what’s good for me’ to ‘what’s in it for we,’” he says. “The temptation to go back to old practices and habits is always there. And then there are some people who prefer not to change, which creates challenges.”
This is one reason why getting executive level buy-in up front before attempting formal collaboration initiatives is beneficial, Newbourne stresses.
“Most of us are usually pretty responsive to our bosses, so getting them to commit to such an approach can go a long way to getting everyone on board and getting started to implementing needed changes,” he says.
The three stages of collaboration
making collaborative relationships function in the supply chain requires two ingredients and three stages, argues Paul Dittmann, executive director of the Global Supply Chain Institute at the University of Tennessee. He says trust and information must be shared on a mutual basis between motor carriers and shippers. And it’s not easy to do, he warns.
“Carrier/shipper relationships are often heavily price-based, with contracts re-bid every year,” Dittmann explains. “That environment makes it a little tougher to engage in collaboration but not impossible.”
For starters, a high degree of trust must be established between the two so detailed information can be shared. That includes everything from key performance indicator (KPI) metrics to strategic plans and company goals.
From there, motor carriers and shippers need to progress through the three stages in their evolving collaborative relationships:
- The first stage starts with recognition by both parties of the potential power of collaboration, which requires some supply chain sophistication on both sides. Senior executive support and encouragement also is a common factor in early collaborative relationships. And finally, success in getting started depends on the acknowledgement by both parties that it will involve a lot of time and effort.
- In the second stage, the companies now have a supply chain strategy with collaboration being one of the core elements. The partners have worked together enough to develop the trust to share data and strategies openly. They have invested in technology to facilitate the process. And they have a mutual plan to sustain the effort, even as people inevitably change jobs over time.
- In the third stage, the parties mutually develop KPIs and jointly measure success as a common group. They are now connected with technology. In the final level of maturity, they agree to share the savings equitably from their joint improvement efforts. Companies that reach stage three drive better fill rates, lower inventories, lower cost, higher economic profit, and increased shareholder value.
“Collaboration consists of a supplier and a customer working together to achieve mutual improvement,” Dittmann adds. “That’s easy to say but very difficult to do. You need to choose which hills to fight on together carefully.”