By Brad Dechter of the DHX, DGX & DAX GroupThese are tough times for everyone involved in transportation. Asset based companies; shipping lines, air carriers and trucking firms are spilling red ink all over their P&L statements. Non asset organizations like forwarders and 3PLs are suffering less because of far lower fixed costs. However, there is little doubt most of usare hurting. Almost everyone in logistics is suffering through the most devastating downturn in the past 75 years. Yes, the economy is improving, but prosperity is not just around the corner. It remains a transportation jungle out there. In my almost thirty years as a forwarder, I never have witnessed such an extraordinary emphasis on rates. In this enormously competitive environment, shippers are attempting to extract the lowest possible price from their suppliers. Who can blame them? Traffic managers are under terrific pressure from "upstairs" to obtain rates that cut even further forwarders' razor thin margins. Customers come to the negotiation table not with scalpels but with cleavers. Not surprisingly, this frustrates many forwarders who refuse to offer "lo-ball" rates. Consolidators respond to their customers' requests--no demands, with a litany of replies. "What has happened to service?" they ask. Or, "please don't treat us like a commodity." Or, "I thought we were partners, not adversaries." Cutting through this rhetoric is the plea for shippers to choose them even if the forwarder doesn't have the lowest rate. Angry and frustrated when they lose a bid, the forwarder believes the shipper is oncentrating only on rates. To be candid, this attitude will get the forwarder nowhere. Traffic managers make decisions that will benefit their companies, not their vendors. If not, they don't remain traffic managers for very long. Do shippers today pay a great deal, an almost obsessive interest in price? You can bet the farm on that. There is any number of cogent reasons for current shipper thinking.
  • Price is the principal factor in almost every savings calculation. Traffic managers are judged by the dollar savings they bring to their companies.
  • Price is the key ingredient in almost every value calculation. It is the job of traffic managers to find the best value for their companies.
  • Price is far easier to quantify than service levels. Traffic managers have only so much time to evaluate competing bids. The price quoted by the forwarder is specific while promises of high service levels are not.
All of the above reasons lead to the dreaded "we're being treated as a commodity" complaint by forwarders. "Won't customers take into account our superior levels of service, our knowledge and experience in the shipping business and our financial stability?" they ask. Now is the time for the forwarder to stop complaining and to take a hard look at what differentiates him from his competitors. If the forwarder cannot show these differences, price is the only way he can compete. If rates are his only weapon, the forwarder must know his price structure down to the last paper clip to make any sort of profit in a bid for business. For those agents who genuinely believe they have levels of service which can overcome the lowest price syndrome, they must persuade the customer to acknowledge this. The forwarder must focus on how his company differentiates from others. The trick is to accomplish this in ways that are not overblown or exaggerated but are credible, candid and succinct. Framing a value proposition does not mean vague promises of greater levels of service or savings that defy believability. It does mean backing up benefits offered by the forwarder with solid data or even third party endorsements. Put your benefits into a framework that can be easily understood and can be communicated from middle to senior management, who increasingly make the final decisions, quickly and with a mininum of logistics jargon. Don't count on the strength of any past relation