Any time a freight carrier competes solely on price, they put themselves at risk. It’s the ultimate short-term strategy: a lever that can be pulled only once. Typically, it’s the last move that is made before a product is commodified, often provoking a classic race to the bottom.
“If you’re using price to win business, you’re probably doing something wrong,” says Thom Albrecht, chief financial officer at Reliance Partners and former equity analyst at BB&T Capital Markets. “Trucking is about constant reinvestment. Asking a carrier to cut their rate means asking them to cut capital spending. You might not see the impact today, but the quality of service will suffer down the line. Cutting rates cuts a carrier’s ability to increase capacity, to improve equipment, and to provide efficient, reliable services.”
Just as carriers figure each shipper’s situation into the transaction to arrive at a quote, shippers should be doing the same thing on their side, factoring in not only the initial quote, but the final amount paid, including additional fees, penalties, upcharges, and damages, otherwise known as the “Total Cost of Transportation.”
While low freight prices are hard to ignore, they don’t mean much if the margins they enable are eaten up by higher fees or penalties later. The era of paper bookkeeping made it harder to see the total cost associated with shipping over the long term. Digital platforms give shippers a 360-degree view into the total cost of their transportation.
Focusing on quality might feel like a luxury, but shopping for transportation isn’t a trip to a wholesale store.
In trucking, quality and price are closely related. Myriad things can go wrong in a single journey, from late pickups to weather problems, to equipment malfunctions, to damages, to late delivery, with each one resulting in additional back-end cost.
Here are some other factors that shippers should consider when evaluating carriers:
By considering all these factors, shippers can make informed decisions about which carriers to use. This can help them to achieve their transportation goals and improve their overall business performance.
Preparation is key to meeting the demands of inevitable change. Our newly published whitepaper gives you insights and trends about managing your supply chain in this current business environment. Hear from transportation experts on building resiliency in a volatile world.