Many shippers have bought into the marketing hype that they must have APIs, but don’t fully understand the power of what is available to them. Yes, they are quick and easy to connect and significantly more cost effective to access and maintain, and certainly a very compelling argument is made to capture Live Lane Specials from carriers through Banyan’s new dynamic pricing tool, Intelligent Pricing.
But what is often missed is the agility and speed with which to work with carriers on pricing.
Most of the TMS systems in use today were founded on the notion of loading LTL static tables of rates, and an elaborate infrastructure was built up around normalizing all the carriers’ unique benefits under an averaged industry tariff. This included annual contracts, routing guides, bid packages and rate auditing. This served the industry well right after deregulation in 1980 when carriers rates were within 1 percent variance and the technology required a single-rate structure (because that was all that was supported).
Although technology has advanced dramatically and the rates between carriers vary greatly, many of the legacy practices remain firmly entrenched with shippers.
Modernizing freight pricing strategies
Weaning shippers from averaged pricing and annual contracts is a leap of faith that some prefer to step into slowly. Many shippers will retain the licenses and averaged pricing with a couple of their core carriers, and invite other carriers to propose pricing from whatever rate base the carrier can be most competitive.
Because the shippers integrated APIs, that shipper can rate shop every move and the routing decisions made—through automated business logic or manually—on every shipment, as well as issue monthly feedback loops to the carrier reps on what lanes were lost and by how much. The shipper benefits from working with the carrier rep and allowing the carrier to select which lanes are best for their networks. And rather than throw a hand grenade by negotiating 12 months of rates in January, the shipper and their carriers can work together to polish the rates throughout the year.
The agreement serves as a starting point, and the monthly feedback opens the conversations and enables carriers to select what lanes are worth adjusting for their network. This is precision partnering throughout the year that delivers savings that is based on minimal risk to each individual carrier, because the carriers initiate the offer to make adjustments and update the shipper’s contract.
This strategy is a two-way street.
There are lanes that may be unprofitable for carriers, especially if the shipper is requiring carriers to bid on a foreign tariff. The carriers measure the value of a shipper by their yield. If a shipper is not meeting minimum yield objectives, they may lose that entire contract with the carrier.
In a less extreme example, a savvy shipper can ask their carrier reps to identify all of the lanes that are not operating at a desired yield and identify the severity with a one, two or three—with three being the worst. The shipper can review those prioritized lanes and selectively suggest that the carrier raise the rates on those lanes to a level that is acceptable, understanding that they may not be awarded those lanes in the future.
The shipper can likely find another carrier to cover those lanes, and/or it may find that the carrier might want to become more aggressive over the course of the next billing cycles to recapture some of the lanes raised.
The point of the exercise is for shippers to understand their yield rather than just the discount percentage of their agreement. By reducing a few bad lanes for the carriers’, the shipper’s yield increases dramatically, leaving room to get more aggressive on the lanes that the carrier really wants to haul.
A win-win scenario for carriers and shippers
Ultimately, this approach results in lower costs to a shipper, and yet a higher yield to their carrier.
Side effects of these strategies include a very simple conversation to wave the general rate increases (GRIs), because the shippers and carriers are in open communications throughout the year. The other bonus is the elimination of the annual bid process.
Why start over when you can keep the dialog open and active every month?
It is like returning two to three months of time back to both shippers and carriers by simply removing a process that no longer delivers real value. Traditional freight audit and payment will likely not keep pace with monthly changes to contracts across multiple carriers on different base rates. There are simple solutions replacing the static infrastructure that LTL has lived in for so long.
The bottom line
All the steps listed above are strategies for shippers to truly partner with their carriers and open dialog about how they can assist each other’s business to grow profitably. These are initiatives and opportunities that exist over and above Intelligent Pricing.
Implementing APIs is the ideal first step, as it positions the shipper to amplify the impact of their API connectivity with Intelligent Pricing.
Technology has shifted, and the shippers that adapt to take advantage of these processes are best positioned to deliver significant savings to their stakeholders.