Resource Center/Article07/22/2022

The Contract Pendulum Swing

The word on everyone’s lips at the moment is that the carrier contract pendulum is once again on the move. But is this news really true?

The word on everyone’s lips at the moment is that the carrier contract pendulum is once again on the move, this time back into the favor of shippers. But is this news really true?
For parcel and LTL carriers alike, the pandemic certainly gave them opportunity to reassess the value and efficiencies of their carrier networks, prompting – as we see in the Green Mountain Benchmark Report – rising fees, peak season volume caps, and… sometimes interesting service experiences. UPS went so far as to dedicate a whole new business model to this change in behavior: ‘Better Not Bigger’.
For the last two years, Green Mountain has advised our customers that the successful contract negotiation table strategy is less about negotiating savings and more about mitigating rising costs. Behind this cost mitigation effort are a number of initiatives we help our customers identify and monitor, but they largely boil down to carrier diversification – or achieving the right “carrier mix” for the moment.
This effort is so critical to the success of their network that we often build multiple models of their shipping networks as they would exist under a varying number of involved carriers, helping them explore the financial impact of shifting more or less volume to specific carriers.
Of our customers that have been able to move large portions of their volume to regional or alternative carriers, we have seen national carriers like FedEx and UPS ask for some of that diverted volume be returned to them. And for those shippers in particular, it certainly does feel like their bargaining power has been elevated (if not returned) compared to the collective shipper experience of the last two years.
However is this a pendulum swing for the entire industry? Perhaps, though it’s currently not an experience we see dealt evenly across the board. It’s certainly reasonable to assume that the national carriers are feeling the weight of a collective carrier diversification effort by shippers; however, when carriers will decide to act on that feeling is still anyone’s guess. For the LTL market in particular, this seems less likely to be the case. LTL carriers are still very much realizing their pricing power.
Our best advice is to remain cautious of deals that seem too good to be true and remain steadfast to the contract strategies that have gotten you through the pandemic. A greater indication of the negotiation conversation might not be the carriers at all, but instead actions by shippers like you. Survey responses to the Green Mountain Benchmark Report indicate that shippers are still very hungry for and seeking regional/alternative carriers. This tells us the well is not yet dry, nor is it being abandoned.
If you’re one of those shippers experiencing the pendulum swing, be open to the opportunity, but be mindful that you may still need an alternative plan should the tide turn once again. Green Mountain continues to advise customers to do the internal work necessary to become/stay flexible in terms of carrier integrations and management, as well. Many shippers have yet to realize the full strength of carrier diversification due to technology limitations, but this strategic tool is not going away, regardless which way the pendulum is swung.
For even greater insights into the 2022 parcel and LTL industry landscape, download the full Green Mountain Benchmark Report.

Success with a proven process

©️ 2024 Green Mountain Technology, LLC DBA Green Mountain