Sunday, June 26, 2016

Revisit "Favored Shipper" During Downturn in Rates

I have advocated over and over that the idea of getting better rates because you are a "favored" or "preferred" shipper is a red herring.  The idea that a trucking company will take less in profit because you are preferred just does not make sense.

In the environment of rate reductions and over capacity I am sure shippers are starting to hear the same old mantra from the trucking companies:  "Stick with us and pay higher than market rates.  Once the "worm turns" we will stick with you".  This is the logic. Yet by all accounts, even the transportation executives believe transportation is a commodity play.  Less capacity and more demand = prices go up.  More capacity and less demand = prices go down.  That simple.

I had been somewhat a lonesome person in this argument until C.H. Robinson, along with Iowa State University, attempted to quantify this with a white paper entitled:  Do "Favored Shippers" Really Receive Better Pricing and Service.  Let me cut to the chase and let you know the answer is NO.  Here is a quote:
"Carriers cite many attributes that may result in "shipper of choice" status.  Research shows that keeping the driver moving and generating income is more important to these carriers than keeping a shipper as a customer".
The bottom line is that dwell time of the driver is the overriding factor to determine if you will get best price or not.  And really, it is not even the driver rather it is the trucking company asset (Truck and trailer) they truly care about.

So, remember, no matter what you do in terms of "market rates" what really matters is dwell time. The research clearly suggests that regardless of what you do in terms of rates now, in the future, it is all about dwell time and if you do not have best dwell time, what you did when rates turned down will be meaning less.

My advice is the same now (and even strengthened) as it always has been.  Take what is yours in terms of rates because the trucking company will take what is theirs when the environment changes. Then, of course, do the right thing and keep the trucks moving.

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