The threat of financial turmoil can be a powerful force. I’ve seen carriers, anxious over finances, cut their sales staff to reduce costs and rely instead on intermediaries and brokers for marketplace representation.
That strategy merely trades one cost for another, one known and the other a mystery. Before altering marketplace engagement, a carrier should consider what costs may hide in any third-party relationship.
How administrative and claims costs can eat into profits
Every business is susceptible to administrative cost creep, and carriers are no different. Intermediaries and brokers can exacerbate existing inefficiencies and eat away at profits.
Often, intermediaries request dedicated resources for all associated administrative functions. To comply with this request, a carrier must use numerous resources to cover vacations, illnesses and turnover and often manually upload proprietary claims and accounts payable. Administrative support may well serve the needs of the intermediary, but it adds costs to the carrier and mismanages resources.
Disputed invoices and claims, including re-weighs, re-classes, re-deliveries and inside deliveries, are difficult and time-consuming to resolve. Layers of communication between shippers, intermediaries and the carrier add to the burden of resolving disputes.
Claims are another source of creeping cost infestation. Intermediaries can do an effective job of helping the carrier control claims costs. Brokers, however, have very little control of freight quality.
Brokers' phone bank of inexperienced solicitors calling inexperienced shippers leads to all sorts of claims issues. The unsophisticated shipper knows little about mandated packaging requirements. In an effort to keep their shipping costs at a bare minimum, boxes can be overly flimsy, with overly thin shrink-wrap very thin and overused pallets. Claims just waiting to happen.
Carriers should acquaint the intermediaries with what types of freight work best for their needs and demand compliance. Accepting the bad freight with the good freight, which many intermediaries say is a condition of doing business, does not serve the carrier’s best interests.
Why intermediary-represented shippers can entangle operations
Because so much of a carrier’s costs are incurred in operations, it’s no wonder they're sensitive to inefficient business conditions and requirements.
Too often, these conditions and requirements aren’t revealed by the intermediary-represented shipper or receiver until cost avoidance is impossible. And when your profit margins are in the single digits or low double digits, every dollar of additional cost has to be offset with claims-free revenue.
In the past, it was obvious that intermediary-represented shippers consistently tendered single shipments, many of which fell in the minimum rating category. We as the carriers could much better control this with direct customers. But because we lacked status, (we were "just the trucker" after all), intermediary-represented shippers were a control challenge.
In too many cases, inefficient conditions and requirements like this aren’t noticed until the contract is renegotiated a year later. A lot of costs can pile up in a year. Who likes a 30%-40% rate increase?
Many of the intermediary-represented shippers are small businesses, unsophisticated when it comes to commercial shipping. It is not uncommon for the carrier to experience restricted access and inadequate shipping facilities. Carrier stop times and frequencies are then hurt, a key efficiency and productivity measure. Unless operations and sales work together together to identify and resolve issues, these conditions can impact the overall costs and service as route delays reduce the carrier’s ability to satisfactorily service their customer base.
In today’s inflationary environment, true cost evaluation is paramount. Large customer servicing costs are readily apparent to the carrier. However, the true cost of an intermediary-customer relationship may be hidden as the business is spread out over a large number of small shippers and receivers.
Many carriers now have the technical ability to gain greater visibility into detailed intermediary costs. Sharing this information with the intermediary readily and quickly can save money and limit frustrations for the carrier, two advantages that are key no matter what the economic climate.
