SupplyChainDigest Editorial Staff

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Article in this month’s Purchasing magazine says the rising pressures on trucking costs – fuel, insurance, labor, etc, - are causing both shippers and carriers to adjust the way they negotiate and analyze their business relationships.

For example, some shippers now want to understand how a carrier is “hedging” against potential diesel fuel increases to minimize rate or surcharge impacts from rising prices at the pump. It quotes John Gentle, head of transportation of Owens-Corning as saying: "When we talk to prospective carriers, we are more interested in what the carrier is doing to abate these costs instead of how they are passing them on [including hedging]. That makes them a more attractive carrier to us. Our job as a manufacturer is not to just pass costs through to customers, it is to make customers grow and prosper."

On the other hand, some carriers are sending a not so subtle message that if you have a contract that doesn’t allow for fuel surcharges, you may find yourself without a tractor when capacity gets tight. A spokesman for Old Dominion says in the article the carrier “pays close attention to which shippers are paying the fuel surcharge and in what amount to help it make business decisions during times of tighter capacity.”

While shippers understand the role of transportation in making their increased lean supply chain work, and therefore the need to ensure carriers are profitable, there are obviously limits. As Owens-Corning’s Gentle comments: “Carriers need to learn that they cannot complain about not attracting drivers—while increasing their operating ratios significantly."

The article says shippers often mistakenly think they are saving money by having the driver perform tasks like palletization and loading. A carrier executive notes: "Our fully allocated costs for a city driver run $55 to $60/hour. So if the customer delays our driver for an hour before loading, we allocate our costs based on the arrival time. The customer thinks he's saving money by having the driver palletize freight and wrapping it, but really we're allocating those costs to the shipper. If we can enter and exit those facilities more quickly, we can provide more aggressive pricing."

How are rising transportation costs impacting the way shippers analyze and contract with carriers? What are the best strategies for dealing with widely swinging fuel surcharges? Let us know your thoughts.