Professional Approach to Transport Budgeting (Part - 2 continued)
It's your truck but it's their freight which calls for an exceptional carrier/shipper relationship
Addressing some of the more common errors in budgeting and pricing - how to avoid them
Conquering the Relationship Divide
It is important to realise that there’s a huge difference between a small privately-owned carrier getting down to projecting next year’s budget and that of a quoted, multi-million rand, national carrier. The principals are fundamentally the same but the scale and complexity is vastly different.
However, both small and large carriers alike must understand that their primary source of income is derived from hauling customers’ freight and a crucial challenge is in conquering the “relationship divide”. A shipper’s goal for cost savings will always clash with that of a carrier’s objective to improve profit.
Fundamentally, the difference is in how both shipper and carrier view transport. Nonetheless, the deal is only concluded when both parties identify and realise the benefits they hope to derive from such a relationship. It’s got to be a win-win venture; where both parties accept that each must benefit from the transaction, not forgetting that the proceeds to fund this beneficial relationship can only be gained from removing existing wasteful and unnecessary practices. Essentially this means accurately identifying where they exist, then set about methodically removing these deeply ingrained beliefs that they are indispensable.
The shipper/carrier relationship is a balance between Business Model alignment and Mutual Utility i.e. Value creation. So, both parties are out to safeguard their interests, which means carefully calculated pricing should be subjected to intense scrutiny of “what-you-get-is-what-you-pay-for” bargaining. In other words, Request for Quote (RFQ) sets the tone for accurate pricing of Service Level Agreements (SLAs) ̶ nothing more ̶ nothing less.
Thoroughly understand shipper’s needs apart from wants
Professional budgeting begins with a thorough understanding of a shipper’s need for affordable and reliable road transport services at the most competitive price (note: not the cheapest price).These are two primary concerns that make-or-break shippers’ choice of carrier. Remember, it’s easy to overstate service delivery policies but it’s very costly.
Assist the shipper to understand where and how to avoid unnecessary and wasteful expenditure.
Invest time to fully understand the shipper’s business and road transport prerequisites before pitching for the business. Don’t wait to hear that they are in the market and then hurriedly respond to a RFQ. In fact, assist potential clients to understand how to ‘trim the fat and not the muscle’ in structuring their RFQ. Tactically convince the prospect where important savings can be introduced and service delivery improved after all you are the expert and that’s 90% of your value differentiator. Adopt a new perspective by thinking out-of-the-box and sell with a sincere intent to deliver better service and save them money.
Where does it begin?
Most, if not all, shippers face seasonal variations in supply chain demand that distresses their in-and out-bound freight demands as well as routing and scheduling. However while vehicle types, loads and applications are infinite, articulated vehicles assist in overcoming most of these problems in this regard.
In the US the ratio of semi-trailers to truck tractors is around 2,6:1, as shippers strive to avoid ‘detention time’ charges by insisting on ‘drop-and-hook’ operation. This, together with ‘slip-seat’ driving, improves service delivery and ups vehicle ‘hub-time’ (an expression used to denote vehicle on-road utilisation), hence lowering fixed costs, thus creating a better deal for customers and the carrier! Remember: "if the wheels don't turn they don't earn!"
This might surprise you, that the average hub-time among SA road transport operators is less than 3 000 hours a year. Work it out yourself. Take an average long-haul 6-axle artic or 7-axle interlink doing 200 000 km/year, averaging 70 km/h = 2 857 hours out of 8 760 hours a year, which is equal to only 33% hub-time. The secret here is that increasing hub-time not only reduces fixed cost: it also vastly ups revenue earnings and asset turn. What stuns me is that Operators simply don’t see the whole picture on this reckoning? They mostly respond; insisting on only one driver per truck to impose accountability for vehicle abuse.
Closing the Deal
Regrettably at this point costly service delivery compromises can completely scramble even the most carefully calculated cost/budget projections, simply because they were promised “to close the deal” and not factored into the pricing. This is fairly common practise when concluding contracts in difficult, highly-competitive, trading times.
The first thing for carriers to realise is that changing the numbers to get the business isn’t going to work. Cost-to-Serve is how it works. Any way you want to see it, same-day delivery is going to cost more than 48-hour delivery. In road transport, expediency mostly comes at a price!
This brings Service Level Agreements (SLAs) into focus. As you are aware, not every shipper has or even wants, the same service delivery terms. It means budgets must be carefully and precisely crafted around each formal SLA and this complicates matters, especially when servicing multiple clients. Essentially it means running separate budgets and P&L accounts for each contract.