It was a cold, wintry late December night in 1987. I had a part-time job working for a trucking company and had just arrived back at the freight terminal in Milwaukee from Chicago with a set of doubles.
To my surprise, a holiday party was going on inside. Company event notices didn't seem to trickle down to part-timers. It being 10 degrees below zero with 30 to 40 mile-an-hour winds, everyone inside the terminal seemed to be enjoying themselves. Sensing that I was not in the mood for a party, one of the dispatchers, Frank, a salty trucker noted for beginning each sentence with that word beginning with “F,” slapped me on the back and told me the quiet area was in the back room. Once there, I saw one guy sitting in the corner by himself. I introduced myself, and 20 years later, I can't remember his name, but I'll call him Joe. It didn't take long for me to figure out that Joe didn't have an outgoing personality. But I soon understood Joe and his desire to be alone. At the same time, I learned a valuable lesson. You see, Joe was the pricing manager, and he certainly was not well liked by anyone. While we made small talk that cold night, a sales rep walked in and gave Joe an obvious sneer. Shortly after that, the regional vice president came in. He shook my hand and wished me happy holidays but gave Joe a look of pure disgust. A few more visitors came in — and there were a few more sneers thrown Joe's way. Finally, as I was in no hurry to face the outside elements, Joe started to open up to me. He said, “You see, Greg, I have no chance of winning. The sales reps don't like me because I never give them the pricing they want. They blame their lack of sales on me. The upper brass doesn't like me because they think I give everything away for free. I CAN'T WIN!”
My other part-time job was supervisor in a distribution center, so I was already familiar with what he was talking about. In fact, I was doing some freight price negotiating myself. Thinking I could help Joe feel better, I boasted about the great job I was doing in negotiating rates. “I'm getting 75 percent off with the carriers I'm using,” I said. Joe laughed at my statement, paused, and said, “I think you left out the box of doughnuts.”
Over the next two hours, Joe explained to me how freight pricing worked in real life. This is where I first heard the expression CZAR LITE. Even though I still can't remember Joe's real name, I never forgot the lessons he taught me. Yes, there are tricks to the trade, but that is not the topic of this article. I will, however, divulge Joe's top three tricks: (1) Volume. (2) Volume. (3) Volume.
Many wholesalers have been successful by leveraging their buying power into buying groups. So, what about buying power for freight? This is not a, “Hey, the economy is a bad thing,” but something that should be put in place — given a good economy or a bad one.
First, let's split our freight into three categories.
Small package — UPS/FedEx
LTL (Less than truckload) YRC, ABF, Conway Freight, etc.
Buying groups meet once a year to discuss pricing agreements, vendors and terms. What if vendors and wholesalers came together annually to negotiate their volume with UPS and FedEx? This doesn't mean switching providers. Instead, it's an opportunity to negotiate collectively each year for a volume discount. Volume + partnerships + knowledge = Power. Shouldn't we use it?
Small package pricing is not easy to understand. Still, couldn't you picture 10 vendors and wholesalers sitting around a table negotiating with UPS or FedEx at the same time? Isn't this something to think about? Many large companies today outsource their small package negotiations to an expert. Yet, 10 companies negotiating together, each one bringing a little something different to the table, would create that one expert. Instead of negotiating against each other, we'd become valued partners in the supply chain.
Like small package pricing, LTL can be very difficult to understand. For example, base rates, class exceptions and determining which carrier to use for what product are areas that require expertise. A freight buying group in no way resembles an affinity group. We are not looking for courtesy discounts, but buying power, which creates a win-win for all parties involved. Volume = Efficiency. But what about service? At no time can service take a back seat to price. Yet, if a freight buying group held $10 million in purchasing power with an LTL carrier, I have a very good feeling we would find someone to address service issues. Although long-haul carriers and regional carriers should be brought to the negotiating table, you should keep niche carriers out of the picture.
It is very difficult to determine the when and where of utilizing truckloads. Let's say I have three 4,000-pound compressors that need to be in Milwaukee next day from Atlanta. Do I ship them by air? The cost to go air is $1,800, and I've promised delivery by 10:30 a.m. Or, do I set up a team of truckload drivers to deliver by 7 a.m. for $1,000? Again, when, where, how? When it comes to truckload, third-party brokers have the volume. Not only that, but they assume the liability risk if there is an accident. In past articles and at HARDI, we have talked about SAFESTAT. It's very important to know your freight carrier's SAFESTAT score. Why? Because you can be held liable for giving freight to an at-risk carrier with a bad SAFESTAT rating. Fortunately, there are good freight brokers out there who know the business. They use the Internet to negotiate directly with owner-operators and trucking companies to get trucks rolling at a greatly reduced rate. Brokers have a large volume of trucks to pull from, giving the customer flexibility with price and times.
You can't cover the discussion of freight in a single article. Maybe in a book. Maybe in a book the size of the New York City phone directory. Also, the vendor could create full truckloads for their freight partners versus shipping LTL that's more expensive and comes with a greater risk of damage. The possibilities are endless. Together, we could set the trend for the wholesale industry and save our companies thousands of dollars.
To create volume, we will need volume. A freight buying group could also look at the possibility of purchasing shrink wrap, corrugated boxes and other materials in bulk quantities. Good economy or bad, I think the time for freight volume has come. This would be an innovative group that our industry has never seen. Hopefully, I'll have a chance to discuss this topic with you at an upcoming HARDI meeting!
Greg Toler is vice president of Distribution and Logistics, Gustave A. Larson Co. Contact him at 262/542-0200 or [email protected].