Shippers NEED Contingency Planning in their Freight & Logistics Departments Blog Feature
Rick LaGore

By: Rick LaGore on March 22nd, 2017

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Shippers NEED Contingency Planning in their Freight & Logistics Departments

Intermodal | truckload | ltl | flatbed

contingency plan your freight strategyJust this past week a large shipper informed us they made the decision to pull all freight providers out of their routing guide in favor of utilizing just one ... yes ... just one freight provider and we were not that one.  While a large shipper, it was not a big piece of our business, but it did make us think about contingency planning for all NVO and BCO shippers.

Before jumping in, we do want to share the difference in our pricing on key high volumes lanes was less than $0.01 a mile and we were not asked if we could cut the price to remain the lane incumbent we held for years with on-time that never fell below 98.7%. We also want to add this blog is not written from the perspective of sour grapes, but for concern that other large shippers that are considering a similar decision re-think their position.  

A small shipper that opts for the single provider strategy will be fine.  Small shippers have the luxury to simplify their life, while they become laser focused on their competitive advantage.  As the smaller shipper grows, they can then implement a diversified carrier portfolio to balance their shipping requirements against cost and risk.  And on those days a smaller shipper has a service failure from their freight provider. they can easily insert an approved broker in their routing guide, as a fall back position.

The story is significantly different when it comes to a large shipper choosing not to diversify their carrier mix.  Imagine not diversifying your 401K retirement plan?  It could be a phenomenal decision if you land on the next Google, but the chances are slim and it introduces a huge amount of risk that could lead to a disastrous outcome for years to come for you and your family.  In similar fashion, a single freight provider strategy could be equally disastrous for a shipper if they have multiple failures that cause them to lose retail shelf space, which in today's "Amazon World" could quickly bring a company to its knees as they get pushed off the shelf permanently.

save money on your freightPricing is important to everyone with a freight budget to manage and we understand saving money.  To that point, we just re-posted a blog written two years ago entitled "Freight: Need to be Relevant on Price to Talk Service" and it had 100 reads in less than 2 hours.  In the example I shared on our "dear John letter", our pricing was less than $0.01 a mile off on the lowest bid.  

Utilizing one freight provider to move your entire freight sounds attractive.  There would no longer be multiple carriers to communicate with and one call does it all philosophy, but again the risk is huge.

The questions that comes to top of mind is: What Murphy's Law comes into play?

Having been a spectator of similar strategic moves and history has a way of repeating itself, this is what we have witnessed:

  • Capacity and pricing does not return at the speed in which it was walked out the door, particularly in a tightening and rising price freight market, which is where we are today. (see Intermodal & Diesel Blog)
    • Whatever the potential savings / simplicity was assume cost over-runs and simplicity disappears quickly.
      • Buyers are better positioned when they buy on their terms and before the need arises.
        • This holds true in both business and personal spending.  
      • Simplicity turns to complexity, then quickly to urgency, as the sales team points to challenges in their sales numbers because of the logistics team challenges.  The result is everyone from finance to sales will tell you how to do your job, which makes it very difficult to do your job.
        • Always easier to hit Plan B and Plan C, when that contingency is built into the operational execution strategy.
      • As mentioned, pricing is on the upward trend both for the line haul and fuel, so better to have pricing in place now with some volume given to a mix of providers.  The pricing today is much better than it will be second half of this year.
      • The freight provider may have shifted its volume and/or found another shipper, so may not even have the option to provide the capacity it once had in the market.

There are a number of other negatives, but thought that might be piling on or looking too much like chicken little screaming out the sky could fall.

hanjin bankruptcyBefore closing the topic of contingency planning, let's take a quick peak on three events that impacted shippers' performance in 2016:

  1. Hanjin Bankruptcy - 2016.  Imagine the impact of all the import containers being stranded.
    1. The international steamship lines are not seeing significant improvement in their financials, so there is a real concern others could fall.
  2. The fires around LA - 2016.  Those shippers utilizing only the B&N for intermodal had to move all their 53' capacity over to truck to move in and out of the city.  
    1. If a shipper balanced their capacity with an IMC that utilized the Union Pacific RR, there would have been no issue as the UP routes were not impacted by the fires.
  3. Network FOB Bankruptcy - 2016.  Not known by all shippers, but when a freight broker does not pay the underlying asset carrier that moved the load for the shipper that carrier has the ability to claw back for payment from the shipper.

We could continue with examples of supply chain issues of 2016, but you get the point ... but as a reminder let's not forget 2016 was not an anomaly.  Calendar year 2015 had work stoppage in major ports that ground imports / exports to a halt and weather related failures of 2014 that impacted intermodal balance of capacity for months.

Plan for Improvement in your supply chainThe long and short of it all is plan, plan and plan some more and then bring in your contingency plans.  To have a single strategy is putting too much risk into your supply chain.

Feel free to throw in your comments as to what you have experienced or witnessed when it comes to contingency planning.  We want to open the floor, so others can learn and not repeat failures.

 To learn how InTek Freight & Logistics can help your contingency plans, visit us at www.intekfreight-logistics.com

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About Rick LaGore

Rick is the co-founder and CEO of InTek Freight & Logistics, a company focused on being the place where companies come when faced with a logistics problem.

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