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Motor Carrier Selection and Effective Control
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BACKGROUND It wasn’t all that long ago when there were a limited number of motor carriers to choose from. The industry was highly regulated by both the federal and state governments for finance and safety. There were three (3) types of motor freight carriage recognized in law:
Common Carriers were defined as those who held themselves out to the general public to perform the services and over the specific routes identified in their scope of operating authority.
Contract Carriage was defined as those carriers performing service for those shippers with whom they held a continuing contract as opposed to a single Bill of Lading Contract.
Private Carriage was defined as performing transportation and related services in the furtherance of the primary business.
Between August 9, 1935 and January 1, 1995, a span of sixty (60) very important years, a time when the nation’s industrial base grew and developed significantly, there were only a few thousand certificated motor common carriers. For most of these years, there were far less than 800 Common Carriers to choose from.
Perhaps the most significant of all of the rules that severely limited motor carrier competition was the requirement for proving public convenience and necessity. Essentially, this requirement meant that common carrier applicants for operating authority had to prove that their entry would satisfy the rule and their entry into the marketplace would not cause any disruption or harm to the existing carriers. Therefore, the certificated carriers simply appeared at the application hearings and protested; should the applicant be granted the operating authority sought it would have a deleterious effect on the marketplace and therefore jeopardize the carrier’s financial condition and the ability to satisfy the need for transportation. Consequently, the few carriers held the nation’s freight hostage. Being exempt from the Sherman Anti Trust Act, they published the rates and charges, without shipper participation. Carriers could take independent action and shippers could protest. However, most shippers just paid the tariff like they paid taxes.
With a limited number of carrier choices, carrier selection was based upon the belief that all carriers looked alike and therefore the selection was based upon the ability of the freight solicitor to convince the shipper/consignee that their company was the best. Although competitive choice was limited, the professional traffic manager’s job was complex. In the early years they had to be conversant with all of the tariffs as there were no through rates or routes. Issues such as the “aggregate of the intermediaries” and interchange points had to be known and understood in order to find the best carriers.
As time moved on and "through" or "door to door" rates were established, the decision criteria for carrier selection was primarily the values of the services performed.
By 1982 we began to see an increase in the number of carriers, many of whom were not certificated and some of whom offered “off tariff” rates. These off tariff rates were a contributing factor responsible for the rate wars and ultimately led to the decision criteria that carriers were chosen for price. Very much like Wall Street demanding short term profits at all costs, transportation professionals were buying cheap transportation at all costs.
There are parallel examples with all of the other modes of transportation including international freight transportation. Differences do exist, but the commonality manifests itself with the overwhelming increase in the number of carriers offering service.
Between 1982 and January 1, 1995 the Congress of the United States concluded that, “competition should set pricing” and financial regulation cease along with the demise of the Interstate Commerce Commission and the state departments of transportation. The flood gates had opened with the motor carrier population increasing rapidly to over 130,000 motor carriers today. According to the Bureau of Transportation Statistics - 1999, there were 83,147,802 total trucks registered in the United States.
The evolution of carrier selection continues For many companies cheap transportation is important; for the well managed companies, the correct transportation is more important; it needs to be inexpensive yet consistent with the desired levels of service.
THE QUESTION With over 130,000 domestic motor carriers to choose from, how can you effectively and efficiently select the “right” carriers; monitor their performance and insure that your requirements are met?.
METHOD OF APPROACH In order to properly select carriers, there must be a valid selection process and model!
We have found that establishing a “transportation purchasing profile” for effective and efficient carrier selection and routing achieve the best ROI in the shortest time and have the added advantage of long term benefit.
What Is A Transportation Purchasing Profile? A transportation purchasing profile is a template that considers, appreciates and understands corporate philosophies, and customer and vendor requirements, at a minimum. The profile would then be communicated to the pre-determined transportation market place. Carrier response would then be applied to the model allowing you to select carriers that conform to the profile.
One of the best places to begin to develop the profile is to understand and appreciate the corporate philosophies, operating styles and customer/vendor service requirements. This is not an easy task to develop these objectives, as there may not be a stated and/or clearly defined corporate philosophy. While there are many ways to identify the corporate philosophy, one example is to speak with the senior executive and have the philosophy articulated; it is impossible to treat this subject further in this paper. Once the three (3) objectives are established, detail such as, special requirements and conditions must be included.
Next, it is important to understand and map the customer/vendor locations. In addition to the obvious reason, this process begins to establish the basis of carrier service, negotiations and beneficial routing.
Other detail such as, but not limited to the following are required:
Clearly, there are a multitude of items that need to be included that have not been listed and consideration must be given to any unique conditions, but the above list can get you started.
The Process Once these items are understood, they must be reduced to writing and it is critically important that this document articulate the needs. It is this document that will convey your paper or electronic message to the carrier market place.
Next, it is a good idea to have a standard scoring sheet that will allow you to asses the carriers on your terms, subjectively and objectively. That is, you assign your values to each of your transportation purchasing requirements.
The carrier response should then be collated and a short list created. With the abundance of responses you should be able to establish response levels. That is, first, second and third tier carriers. The carriers within these levels should be maintained for current and subsequent use.
At this point in the process, you must make sure that carrier selection is not based upon incestuous thinking that is, in particular, thinking that the carrier market consists only of carriers you have done business with before.
It is imperative that you understand the marketplace and continually update opportunities. We can all appreciate the fact that with over 130,000 motor carriers and equally high numbers in the other modes, both foreign and domestic it is impossible and unnecessary to have complete knowledge of the entire market. It is, however, critical to have a thorough working knowledge of all of the carriers that match the profile. One of the best ways to obtain and maintain such knowledge and information is to create a strategic alliance with your fellow professionals, perhaps beginning with your vendors and customers. The Internet contains a wealth of information and professional transportation brokers should have the required knowledge base.
The Bid Process Unless the bid process and corresponding data collection are handled properly, all of the preparation identified above will be meaningless. It is the purpose of the bid process to begin finalizing carrier selection and the business rules and charges associated therewith.
Once the profile is completed and reduced to a “bid request form”, bids should be issued to all of the carriers identified in the first three tiers. Consistent with the term of the agreements and based upon need, bid requests should be issued at six (6) month intervals or other frequencies as may be dictated by special circumstances. The entire bid process should be handled via EDI and a corresponding program should be created to both issue and process the bids.
The final step should be the interview process of corporate and terminal personnel with all candidates being evaluated using standards such as carrier representation and access to senior management. Additionally, a visit to the terminal closest to the shipping and receiving locations is highly recommended.
Automated, Effective Routing Controls
Once routings are established, effectively communicating this information and communicating it to the proper place is imperative in order to achieve the goals and objectives expressed in the profile. Areas of opportunity that need to be controlled are:
Given the available ASP’s (Application Service Provider) and software it is highly recommended that an electronic routing guide be implemented to perform the following tasks:
The above list represents the basics and it is extremely important that your selection of an on-line, real-time routing guide be based upon the systems ability to meet your objectives, be easy to use, be friendly to your vendors/customers and to help you achieve best practices.
With the routing guide operative in an electronic environment, the advantages are numerous. As an example, www.routingguides.com offers a fully automated ASP that allows you to be in full and complete control.
CONCLUSION
Electronic routing guides significantly reduce costs, improve communications, take advantage of the ever changing opportunities and provide analysis capabilities that do not exist in paper form. Likewise, the automated selection process is far more efficient than the traditional paper methods.
Continuation Please consider this white paper as a beginning in this subject area, succeeding white papers will address common issues and address them with common solutions. We encourage our readers to direct any specific questions or comments to papers@transportgistics.com .
Disclaimer The information presented above represents the opinion of the author and not necessarily the opinion of TransportGistics, Inc. nor is it presented as a legal position.
All content copyright by TransportGistics, Inc. All rights are reserved. The authors of the articles retain the copyright to their articles. No material may be reproduced electronically or in print without the express written permission from TransportGistics, Inc. or the individual authors (papers@TransportGistics.com) |
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