If only every freight debate were so simple! The answer is… “It depends…”
In a past Recon blog post about transparency, we referenced the nature of various 3PLs or freight management companies. Some firms are brokers and work off of obscure margins, while others may operate off a percentage of savings.
These two models offer very limited transparency. For the broker, will you ever know what you pay the carrier vs. what you are paying the broker? Or even worse, what if you request a liftgate that is ultimately not used...or needed? Will you get that money back from a broker who pays the carrier invoice that you will never see?
Then there’s the percent of savings model. “We’ll keep half of the savings that we’ll calculate every month based on a formula you’ll never really be able to figure out on your own… and you’ll really not know if the benchmark we set will be relevant a year from now… Cool??”
So back to the original question… Should you share your cost with either of these models? …..Maybe not.
The Broker: If a broker reviews your data and finds he/she can reduce your cost by 40%, how much will they keep in their margin? And how much with that margin change over time? I’m not here to tarnish brokers as a whole… for the right shipper, the right broker can bring tremendous value in cost savings and especially time savings and expertise! I’ve worked with the best and I’ve seen the worst. Find the one you trust.
Percent of Savings Model: Well, you’ll need to share your cost to get any sort of benchmark, so you have to. But be leery of how that benchmark is set and how it will adjust over time. In the LTL space, I’ve yet to find a shipper who wasn’t completely frustrated by his or her attempts to understand how the savings are calculated over time.
All that said, the answer is, YOU REALLY MUST SHARE YOUR COST!
If you are accepting help or looking for a true analysis from an expert, the only way the “advisor” can have a meaningful level of confidence in his or her results, is to have something to form a baseline.
It’s almost rhetorical to suggest you must trust those you choose to work with, so let’s dig into why sharing cost upfront is important.
- Give the provider an opportunity to say NO… I can’t help you! You’re doing great! Unfortunately, there are some unscrupulous players in the industry, but those who hope to under promise and over perform, will never enter a relationship without knowing with supreme confidence, they will be successful.
- Origin / Destination, Weight and Class never tell the entire story.
- What accessorials are being used, how frequently, and what are those costing you?
- What fuel scale is in place?
- Why are we estimating this lane or shipment so much higher (or lower) than your existing cost? Something is missing or off. Answers are needed or this lane or load should be excluded from the analysis.
- It’s possible part of your existing program is doing great. Don’t blow that up… supplement it! A provider who can maintain your existing positives and improve upon the lingering negatives can maximize the cost-effectiveness of your lineup.
In my experience, about 10% of shippers are unwilling, at least initially, to share cost for analysis purposes. Keeping in mind, my model of preference is full transparency in rates, it’s my belief these shippers are doing themselves a disservice. The most common reason:
“We don’t share our rates with Carriers, so we can’t give to you.” Usually, this indicates the shipper is not differentiating between a broker and a Fully Transparent model of pricing.
- An LTL broker owns the pricing and determines your end price. So comparing to carriers is relevant.
- In a Fully Transparent model, the provider does not determine, only negotiates on your behalf, the end price. The Provider’s fee is completely separate from your freight cost. There is no competition between the Fully Transparent model provider and the carrier.
Your goal is to determine if there is value in the transparent provider assisting in managing the pricing with carriers or not (among other services).
If your concerns are related to rate competition or a negotiating tactic, be sure you understand the nature of the provider you are working with before committing to a path of sharing cost or not.
If your concerns are related to confidentiality of origins or destinations, or that of your pricing among your competitors, use a non-disclosure agreement to hold the provider accountable to your information privacy.
But--- if you haven’t had a third party review your rates in a transparent model, you might be surprised what it’s costing you. Think a minimum of 15% or if you can believe it, I’ve seen as much as 60%!
Start by finding a transparent advisor. They should be able to delineate opportunity and validate success or failure, all with clarity in black and white.
Marc Wojnowich, Promoter of Shipping Smarter | Recon Logistics