MOTOR CARRIER SELECTION AND EFFECTIVE CONTROL
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.
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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:
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.
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