2 big shippers defend the annual bid round in selecting carriers

LAS VEGAS — After almost 60 minutes of discussion extolling all the things shippers and carriers do to build strong relationships, it was time for questions from the audience.

And it was John Piper, noted trucking podcaster and director of telematics and mobile platforms with Add On Systems, who asked the first question: If these relationships between shippers and carriers are getting so much better, what’s the need for annual bid rounds? Why not just stick with what you have as long as the rate is good?

Robin Baggs, the director of logistics at Home Depot (NYSE: HD), one of the members of the panel at the annual meeting of the Truckload Carriers Association, said incumbency does matter. “We over-index on purpose for incumbency,” Baggs said of the fact that a carrier that has performed well for the home materials giant will be credited for that in the company’s annual bid round to secure trucking capacity.

But it’s not enough just to go with the incumbent, he said. The annual bid round “is an opportunity to reset the rate, but to reset it in a market that is competitive,” he said in response to Piper’s question. If the rate offered by an incumbent is good, Baggs said, “we try really hard to keep the same carrier on the same lane if it is a good fit for them and the service is good.”

As a result, Baggs added, some lanes are taken out of the annual bid round before it is launched, and the incumbent stays in place.

But trucking markets are “dynamic,” Baggs said, “and what was a good fit 12 months ago may not be a good fit this time around.”

“If you take everything off the table and keep a static network, you’re not only keeping the lane static for the ones [the carriers] own but also preventing them from the ability to compete for lanes they don’t own.”

Rather than seeing the bid rounds as a hindrance, Baggs said Home Depot has found that carriers “tell us they love the process. It allows them to get to lanes and do a reset.”

“It’s a dynamic network and it changes on a regular basis, and you need some sort of mechanism to reset your network,” Baggs said. 

Another questioner was somewhat dismissive of the idea of the term “partnership” put forward by the three panelists: Baggs, Steve Heuser, the North America Transportation director at Cummins Inc. (NYSE: CMI), and Joey Hogan, the president of truckload carrier Covenant Transport Services (NASDAQ: CVLG).

The variety of charges above and beyond the base rate that shippers are getting hit with “don’t feel like a partnership to me,” the questioner said.

Heuser said Cummins has been working toward trying to have a standard rate of accessorials that it will accept. But he also called on carriers to be open and consistent about their fees. “I think there has to be some level of transparency that has to be shared,” Heuser said. But he conceded that every organization has “its own set of rules, so that comes into play sometimes.”

Two relatively recent developments in the relationship between shipper and carrier were also raised. Hogan noted that extended payment terms that might have been a minor concession in the past because of low interest rates are now facing the reality of much higher numbers. “This is going to be an increased cost to your income statement real quick,” Hogan said. 

A growing factor for shippers is how companies stack up on their ESG principles: environmental, social and governance. A vague concept a few years ago, it increasingly is becoming a formal goal, especially for large, publicly traded companies. 

The type of trucks that potential or actual carriers are utilizing is now a factor in who gets selected for a lane, according to both Baggs and Heuser. 

Heuser said Cummins has specific targets regarding emissions which are part of its broader commitments to ESG principles. “We need to have the ability or the understanding of what sort of vehicles you have in your profiles to help us reach our targets for 2030,” he said. If a fleet is adding lower-emission vehicles, “it can be a competitive advantage” for a carrier seeking business from Cummins.

The diversity of a carrier’s workforce will also be a factor, he added.

Hogan noted that the trucking industry already is doing significantly better in sustainability efforts simply by the seemingly endless gains in truck mileage. “In the ’90s it was a dream to get to 6 miles per gallon,” Hogan said. Now, fleets are usually at least 8 mpg and are pushing toward 9 and 10 as a new standard. 

“That’s a huge movement and we need to be proud of that,” Hogan said. “It’s a huge move for the industry that we’re not getting credit for.”

The first question asked by moderator Karen Smerchek, president of Veriha Trucking, was about what sort of scorecard shippers use to judge their carriers. Heuser said it hadn’t changed much: rates of tender acceptance, on-time pickups and deliveries. “We are really monitoring the tender acceptance rate and knowing which carriers are doing what they say they are going to do by picking up and accepting loads,” he said.

Baggs offered a similar answer. Even in an extremely tight market, he said, “those fundamentals don’t change. It’s on-time pickup and on-time delivery [that] are going to be extremely important regardless of what the market conditions are.”  

A discussion on the use of brokers — described as “non-asset-based companies” — suggested that major national shippers like Cummins or Home Depot are not large users of them. Heuser said Cummins uses non-asset carriers only four to five times per month. “We have some lanes that are just hard to get carriers to stick on,” he said in discussing when the engine maker might go that route.

Beyond those “special situations,” as he called it, “we try to focus on fleets. They are not only our customers but they are more reliable. We know who is moving the freight.”

In comments sure to frustrate some brokers, Heuser said the use of non-asset carriers means, from Cummins’ perspective, “we’re not sure who is moving the freight, and with my team that does create concern.”

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