3PL Perspectives
TO SAY WE’RE living in “interesting times” might be an understatement lately. From shippers having an over-supply to the challenges that smaller carriers are experiencing with fuel prices, to the greater macro-economic challenges of inflation, there are many new dynamics that will likely continue for some time. Carriers are under pressure as fuel costs reach record highs and margins are being pinched while brokers must continue to improve communication with shippers around market pressures, challenges, rising rates and more. These supply chain and economic challenges increase the level of uncertainty for our industry and put additional strain on customers and vendors alike. So, I’d like to go over some concepts and tips that have served me and other brokers well during choppy markets.
Customer communication is always top of mind in a freight brokerage. Do you know what challenges your shippers are experiencing week to week? It may not be enough to just know the high-level anecdotal gripes of your shippers; it may be time to dig a bit deeper. Having transparent and clear communication with shippers leads to longer-term retention and supports the creation of a true value-based partnership. Understanding more granular details of your shipper customer’s supply chain will help you better understand potential risk exposure to both your customer and to your own business. Where does your shipper source their materials and stock from? Are these markets experiencing any historically difficult challenges? Analyze how this might affect their volumes and price sensitivity and try to come up with proactive solutions supported by transparent investigation and increased trust. Increase your understating of your customer’s long chain and start identifying opportunities to diversify your customer portfolio with new customers in industries less likely to be disrupted.
Credit is always a hot topic but should be even more of a focus in a choppy market or uncertain economy. Mind your credit closely and review how you’re handling credit decisions for customers. Make sure it’s a well-documented process that has been tested through some sort of careful analysis. Even if you have limited resources and are handling your own credit decisions you can still run through an exercise to stress test assumptions and try to poke holes in your policy. Which customers are most likely to experience a credit challenge now that you better understand their challenges? Is there a way to include an extra step or additional diligence into your credit approval process to account for the added risk? Do a regular recheck with third-party credit data sources for customers you have already extended credit to in more frequent intervals. Don’t rely only on your data. Even if they are paying you well, they could be defaulting on payments to other vendors which might be a sign that you need to dig deeper and possibly freeze the extension of high credit limits until the third-party credit performance improves.
Look out for warning signs like crossageing heavily. Basically, if more than 25% or 50% of a customer’s receivables are overdue by a certain number of days then you might need to stop extending credit or put them on hold. Staying on top of collections processes or the health of your ageing on a weekly basis will also help head off difficult conversations with customers sooner. Be clear, open, and honest about the challenges that unpaid invoices can have on your operation as the shipper’s partner, and make sure your operation is following any necessary instructions for invoicing from the shipper to ensure prompt payments. Can you leverage a factoring company or third-party service provider to help shield you from credit risk or better manage your credit and collections processes as you scale over the next year or two? This may be a great option to consider if your resources are limited or you’re newer to the industry.
Carrier relations are the other major area that is crucial in a choppy or uncertain market. If you have set or repeat carriers or smaller fleets, make sure your relationship and transparent communication is well established and has a strong foundation. Look for backup capacity options to support your repeat carrier portfolio by examining positive past interactions with other spot-market carriers and their lanes. Get your carrier sales team in touch with these groups and try to proactively involve them with future repeat business. Broadening your network of trusted carriers for repeat booking will help establish a strong set of reliable options for your customer base, so you aren’t scrambling to load boards as the only option to cover customer freight. Encourage an empathetic approach on your carrier team and encourage an understanding approach to your carrier capacity challenges. Carriers are strained.
Carrier fraud risk is also something that typically increases when the fright market is challenging, and rates are down cycling. Owner operators and some carriers who may have been blurring ethical lines before the challenging market started to rear its ugly head may decide out of personal desperation to cut corners or even commit fraud. Think through potential scenarios where you could be at risk of fraud. Do you have a service or an internal process to ensure you’re verifying the carrier’s payment remittance info independently or with a high degree of certainty? Making sure the person presenting as the carrier has a business bank account that is owned by the company is key. Paying a fake carrier or a driver that’s fraudulently presenting themselves is a bigger risk in a tough market. What types of countermeasures or processes can you implement to reduce the possibility of double-brokering and assumed identity scams? Is your carrier sales team using third-party services like TIA Watchdog, SaferWatch or Carrier411 to regular check if fraud or unethical practices have been performed by any of your repeat carriers or before boarding a new one? If not, are you working with a service provider who is doing this for you and has a good track record or can provide a satisfactory process explanation?
Uncertain times call for more vigilance, better communication and an audit of your internal credit and carrier monitoring processes. With the right processes or services in place to address these challenges, you’ll be in a better position to survive or even thrive in a challenging market environment, and you’ll be well positioned to ride the market back up when the dust begins to settle.
