Carriers have the upper hand in negotiating transportation rates with shippers as capacity tightens, a survey finds

Article by Wall Street Journal,   Erica E. Phillips   09/29/2015

A capacity crunch in the transportation sector is driving up costs for manufacturers, retailers and suppliers, according to results from a survey published by Logistics Management.

Excess capacity during much of the recession enabled retailers and manufacturers to negotiate “substantial reductions in transportation rates,” and they may have taken those savings for granted, researchers who conducted the study for the trade magazine said. Now as demand surpasses capacity, particularly in trucking, carriers have the upper hand in negotiating rates.

“The new reality for shippers is one of transportation rate increases into the foreseeable future,” the study said. The findings were the result of an annual survey of over 400 manufacturing, retail, wholesale and supplier companies as well as transportation and logistics providers. The survey results, released earlier this month, were presented at the Council of Supply Chain Management Professionals annual conference in San Diego.

The study also found that retailers and manufacturers are increasingly devoting larger portions of their transportation budgets—36.2% last year—to shipping directly to customers. Those shipments are the smallest in size with the highest level of service required.

Some trucking companies and freight brokers have said that the market loosened up this summer, as relatively modest growth and high inventory levels freed up transportation capacity. Marine shipping is dealing with a glut of ships, which have sent rates on some major trade routes plunging

University of Tennessee Professor Mary Holcomb, one of the study’s authors, said adopting new technology to manage transportation is one way companies can improve service and rates. Still, an overwhelming number of survey respondents, 27.5%, said they’re still using manual methods, supplemented with email and spreadsheets, to manage their domestic transportation.

Tommy Barnes of Coyote Logistics, another author of the study, said companies can improve visibility into each mode of transportation via better relationships with transportation providers. Working together at a more granular level will allow companies to do “that surgical work” to trim costs and improve shipping on every mode they use.

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Joe’s Comments: Interesting survey results:  more spending by shippers on final mile deliveries; 27.5% of respondents still use manual methods to manage transportation

 To contain rising transport costs and improve service levels to customers, shippers must continue to:  automate TMS and analytics; grow and nurture carrier relationships; collaborate with suppliers, other shippers, receivers, 3PL’s, and carriers to reduce empty miles; streamline and review shipping and receiving practices; pay carriers quicker, utilize supply chain finance.

Joe Lombardo, NGNF  (nice guy no freight)


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