Transportation analytics is among the most effective tools in trucking contract negotiations. Using real-time data, freight managers can finally begin to recognize their opportunities for better business relationships. As explained by Logistics Management, “ it has become an increasing challenge for the logistics industry to stay on top of new advances in business processes. Taking advantage of these new opportunities sounds enticing, but adoption and onboarding can be overwhelming.” And it’s equally important to know the top 10 challenges for shippers in negotiating trucking contracts like limited headhaul insight and how to overcome them.
1. Limited network contacts result in higher costs
A common problem in the process of annual trucking contracts derives from limited network contracts. A finite group of logistics service providers (LSPs) will inevitably lead to less competition during truckload RFP processes and higher freight spend.
2. Contracts aren’t ironclad
Annual contracts are great. But shippers miss opportunities when trying to follow contracts to the letter. A typical truckload RFP process should include flexible terms that allow companies to adjust to changing freight patterns. Simultaneous creation of penalties and enforcement actions are the only way to create a near-ironclad contract. Still, if the carrier loses drivers, there is nothing a shipper can do to secure more capacity during peaking asset demand periods.
3. Annual contracts continue to fly out the windows during disruption
Disruption is, by definition, unplanned. Annual contracts are not disruption-proof from inception. However, shippers can position contracts to enable agility during turmoil. Of course, that depends on securing shipping data insights well in advance of disruptions’ arrival.
4. Failure to secure dynamic pricing mechanisms leads to unneeded mini-bids
Contracts must include dynamic pricing mechanisms to avoid unnecessary freight mini-bids. These mechanisms might consist of creating thresholds for new surcharges, limiting the volume of shipments subject to surcharges or other steps. Taking this action amounts to a more proactive, productive shipping strategy.
5. Contracts leave little room for severe market fluctuations
Trucking contracts are not necessarily built for disruption. They typically include unique clauses that serve to allow for disruption. In other words, contracts cannot hold a carrier accountable without specific ramifications or other terms listed within the contract. That amounts to an increased need to rebid during severe market fluctuations. And it’s not always a need to secure more capacity. Excess capacity and bottoming freight rates push shippers to move freight to the trucking spot rates market.
6. All carriers are not created equal
Carriers vary and maintain a diverse set of equipment, drivers and lanes. In the complex world of logistics, on-time shipping performance depends on the right carrier relationships. And not all carriers offer the same service tiers or guarantees. For that reason, shippers need a more diverse carrier pool when initiating trucking contracts’ negotiations.
7. Lacking expectations or bid terms at the beginning of negotiations
Shippers need to know what they’re getting into during negotiations for trucking contracts. Failure to set clear expectations for the process, goals for the terms and standards for all-parity participation will lead to added costs and reduce the value of negotiations.
8. Contract language ignores brevity and clarity
Trucking contracts are not a fast-paced document. They should be concise and clear. Brevity of language provides stability for sudden market fluctuations. And that includes creating dynamic market rates, network expansion opportunities and strong application of logistics metrics.
9. Limited capacity adds pressure to sign for the sake of signing
Trucking contracts detail available trucking capacity, volume and rate data for shippers and LSPs. Unfortunately, times of high demand for capacity leads to an assumption that signing faster is critical. While somewhat true, that is the exception, not the rule. Limited capacity adds pressure to sign without a thorough review.
10. Rate data continues to change, even weekly, resulting in poor planning during negotiations
Rate data is subject to market conditions. It changes with announcements, public policies, economic instability and countless other factors. Rates can flip on a dime. And that is the final severe disadvantage during the negotiations of trucking contracts. However, applying real-time data during negotiations will build a more robust, accurate rate schedule.
Apply freight data insights to conquer trucking contracts’ negotiation challenges
Enterprise shippers need evolving, comprehensive strategies for expansion. Trucking contracts fall under the same umbrella. Instead of making hasty decisions, freight managers should apply data-driven insights and best practices to overcome the above challenges. FreightWaves SONAR brings the hidden facets affecting your RFP processes to light. Check out freight data value in action by signing up for a FreightWaves SONAR demo or clicking the button below.