[Music] You are listening to Consulting Logistics presented by Aborn and Company. I'm your host, Tim Doner. Thank you for joining us today. I'm answering some of our listeners' burning questions. We'll be covering carrier benchmarking, LTL shipping, 3PLs versus 4PLs. And we're gonna start with our most popular question. But first, a little housekeeping. We will be releasing a ton of content moving forward, and part of that content series is inspired by questions asked by you, our listeners. All of the answers you hear today will be transcribed and put up in article format at abornandco.com/blog. So be sure to read those, especially if you don't want to take notes while you're driving or getting jacked at the gym. If you're looking for this episode or any of our previous shows, please visit www.potterybarn.com. Wander around a bit. We have plenty of great and informative articles on there covering all aspects of logistics, as well as information on some of our goods and services. But let's

get to some questions. This is exciting. I'm so glad to hear back from the listeners and to share some of these with you. If you want to reach out to me, do so at T dinner at a born in co.com. TD double-o NER at RN a and D co.com. Let's hear it from the shippers as we go to some listener mail. Our first question, quite the popular one, is coming from a lot of listeners, but I'm gonna go with the local guy, Robert F from Quincy. He asks, I'm new to a 3PL and Revere know it's here and I hear people talking about spot rates and contract rates. What are they saying? Well, Robert, thanks for writing in and you are not alone. There's a reason that one of the most popular articles on our site is one of our pieces on contract first spot rates. This article will be available on our site the week of October 1st and should be up on Tuesday the second. There are a few battles in the world of freight more heavily

debated than contract verse spot pricing in a complex marketplace like transportation. Shippers are often left with more questions than answers. Does the benefit of fixed costs and consistent partners outweigh the freedom and potential savings a shipper could see by shopping the spot market? When considering the risk versus reward of contract for spot rates, what factors need to be considered, and more urgently, which side comes out on top in a tough market like what we've seen so far this year? Fixed vers flux. First, let's go through some definitions. Right, what is a spot rate? A spot rate is a one-time, single-use rate quote that is valid for a short period of time and is issued to a shipper at or near the time of their shipment. So what's a contract rate? Well, a contract rate is a fixed price that is valid for a predetermined period of time and is negotiated with the shipper in advance of any freight moves. The tracking rates they rise and fall at any given time in a market driven by a variety of variables but none more

important than the load-to-truck ratio, the main factor in determining the cost of moving freight is capacity. Typically, when there's more loads than trucks, rates go up, and when there's more trucks than loads, rates go down. Unlike the stock market, the freight market isn't nearly as tethered to the economy, though regardless of nearly any other factor, when the load-to-truck ratio is upside down like it is right now, rates increase. Shippers that strictly adhere to spot quotes are betting against a strong freight market and believe that all factors indicate rates will decline for the foreseeable future. Shippers that lock into contract rates are hedging their bets against escalating rates and limited capacity, bets that are likely paying off right about now. It should be noted that spot and contract rates aren't mutually exclusive from each other, and most shippers under contract will still use spot rates unless travel lanes out of contract moves and when the it presents a savings opportunity. That is because a shipper under contract isn't obligated to move every single shipment under their contracted rate.

it's entirely possible to benefit from a soft spot market while maintaining a good relationship with their contracted carrier. As long as minimum freight volumes are being delivered, conversely, it isn't unheard of for less reputable carriers to refuse contracted Freight in periods of high capacity strain. Neither contract or spot rates are without their risk or their reward. So what are the risks versus the rewards? Well, right now, shippers who have been playing the spot market have been paying more for Freight than at any time in 2017. In January, spot rates increased four weeks in a row and were up an astounding 22.9 percent from the previous year. Beyond ballooning costs, spot shippers are getting crushed by the capacity crunch as trailers, flatbeds, and vans become increasingly more scarce. Nearly all of the fear factors that concern contract shippers are converging in a perfect storm, while spot shippers are left out in the rain without an umbrella. We've mentioned rates before, and so far cost is king, but it doesn't tell the

whole tale. You can't look at risk versus reward without looking at the overlooked spot market. Based relationships are inherently risky and rife with hidden costs. Service agreements are often not well managed, and service levels can be wildly inconsistent. Carriers unfamiliar with the shipper's routing and customer's needs may lead to chargebacks, late fees, and other activity that can be damaging to the carrier-customer relationship. Spot shipping can siphon savings and guzzle time if you're not careful. The more freight you have, the more work it takes to shop the spot market. Since every move is a transaction, every shipment must be sent out to any number of truckers for bid. The harder a shipper negotiates those bids, the more money they may save, but the more time it will soak up. The problem is that this process is then repeated for every single shipment. Ultimately, these operational costs should be looked at as part of the final number paid per transaction. And here's the thing: strong carrier relationships mitigate risk. The rewards for working with a contracted carrier are predictable costs.

higher service levels, the opportunity to negotiate fuel and SS Orioles, and access to capacity when capacity is in short supply. Capable partners contractually obligated to help you can keep you dry regardless of how many clouds there are in the sky. Our next question comes in from Don G of Aberdeen, Washington, and he inquires, I'm confused on what a 3PL, 4PL, and a broker is. 3PL, what the hell, what's the difference? You know, something Don, this is one of those things that a lot of people talk about, but I think they're usually biasing their way through, and that's because it is kind of confusing and vague, but we'll try to dive into it. And just a quick note, I will do an accompanying article for this, and that will be up the week of October 1st. I'm gonna say around Thursday, the 4th. So, this is kind of another definition, one similar to contract for spot rates. This is another often asked question, what's a 3PL versus a 4PL and a broker has

broker fit into there well. A broker can be both of those. So, a broker is a much more vague term than a 3PL and a 4PL. But let's go through what the 4PLs are. Let's tell you what the hell they are done. In the modern globalized world of logistics, the shipper has more options than ever. In a market with thousands of third-party logistics providers, it can be a daunting task figuring out which provider belongs where along each link of your supply chain. Added to that are a bevy of acronyms requiring a glossary of terms to decode. In its simplest essence, any shipper looking to use a 3PL or 4PL is looking to refine their process and simplify its management. So, what are the 3PLs? Well, we never really talked about one 3PL or 2 3PLs as one 3PL or 2 3PLs, but they do exist, and it is important to define each layer of the supply chain so we can better understand the roles of 3

peels & 4 peels. So what's a 1 B L, first-party logistics provider, 1 PL? This is where it all begins. The 1 PL, that's the shipper, beneficial cargo owner, or the consignee. They would dictate every aspect of the manufacturing and distribution process from origin until endpoint. Next, we have the 2nd party logistics. These are the carriers, from the steamship and airlines to the railroad operators to trucking companies hauling freight. That's your 2 PL. So then what is the 3 PL? Well, third-party logistics provider. These are the freight forwarders, customs brokers, couriers, trucking companies, and warehouses. 3 PL's are firms that shippers outsource any number of services to. It's a broad term, but if we crystallized it to the legal definition, a 3 PL is a person who solely receives, holds, or otherwise transports at consumer products in the ordinary course of business, but who does not take title of the product. Okay, and moving on, what's a 4 P all right, fourth-party

logistics. A four PL's role is to act as a manager, consultant, or an advisor on some or all of the above services. Their intended purpose is to act as a single interface between clients and multiple vendors and service providers. So instead of the shipper contacting all of their two PL and three PL services, the four PL would act as the liaison between the one PL and the two PL and the three PL. The four PL would handle that work for you. And here are some, you know, to distinguish this a little bit, here are five differences between 3PLs and four PLs. The first one is network. Well, there are thousands of three PLs out there, not all of them are built the same and few share the same strengths and weaknesses. Many 3PLs will engage their network of carriers, promise them X amount of cargo, and then resell those lanes to new and existing customers. By nature, each company becomes stronger and more competitive on whatever respective lanes they are best able to fill. But what about the lanes that they are having a

tough time selling those prices tend to go up. Well, the surface tends to suffer since three PLS have long-established networks. They often aren't nimble enough to open up new competitive routes immediately, and they aren't often willing to advise you to use a better-equipped freight forwarder. For PLS aren't locked into carrier networks, and their best interest is to get you onto each lane where a three PLS is most capable. This presents shippers with a much wider offering of services and a far deeper pool of resources and cost references. Time-management 3 PLS can handle anything from inland trucking to the port, all the way to hi and warehouse management solutions, and all points in between. If a shipper is working with one 3PL that is handling all aspects of their supply chain, then communication may not be an issue. However, most likely they're dealing with multiple 3PLs, even if they aren't thinking of them in those terms. If you're using a separate freight forwarder, trucker, customs broker, and WMS, you're already up to four different 3PLs.

so instead of contacting multiple 3PLs as your goods travel on your supply chain, a 4PL would then streamline that process to a singular interface and do all of that themselves. Data security, there's no greater time than the present to lock up your supply chain data security. Don't tell me about that choice with the ever-growing risk of hacking and data breaches. Shippers have to take control of who sees what and when. In a model where a shipper is using multiple 3PLs, it is not uncommon for crucial private data (invoices, packing lists, customer addresses, manufacturing facilities) to be shared via email and fax between multiple companies and organizations. A 4PL can ensure that your ventures only see the documents they need to see to perform their intended role. Where 4PL helps here is that they can ensure that your vendors only see the documents that they need to see to perform their intended roles. They don't have to have access to data that they don't need that's proprietary that doesn't belong to them. Scalability is the 3PL you're currently

working with, able to grow with your company's changing and evolving needs. The 3PL that was moving a hundred 40-foot containers a year between New York and Shanghai, then trucking them to your warehouses in Greater Boston, may be doing a great job now. But how would they do in lanes adding to France, Brazil, and Australia, along with national routing for inland trucking? It's unlikely that they're the best service provider along all of those lanes. A 4PL isn't tethered to a network of carriers. They can look at the entire scope of your supply chain and place each lane with the appropriate service provider. This translates into better service, greater efficiency, as well as reduced time and cost. And benchmarking? Well, 3PLs do benchmark their own services, but what they're looking at is inherently different than what a 4PL is looking at. An asset-based 3PL is concerned with two major things: agent performance and customer volume revenue. By nature, the data set that they're looking at is smaller than the frame. Conversely, a four

pls benchmarking against all three pls instead of just their agents instead of leveraging segments of freight with a few agents. They're leveraging the industry's performance against itself, and this is a huge and powerful thing because one thing that people don't know is that three peels have contracts with a lot of carriers. They owe them a minimum quantity agreement, and they will do anything they can to make sure that they get that quantity. And then often means not putting you at a better price point with someone who's outside their network because they haven't created the lane density with them. And that's really the real concern with three peels. Three veils are a great thing. You have to do the due diligence of knowing where they perform stronger in some areas than they do in others. But Don, I hope that answer your question on what the difference is between a three PL and a four PL. Karen C Dayton, Ohio asks, my company imports by the truckload and ships Parcel. We've opened a few new DC's over the past year and are having trouble filling trucks.

because our inventory is more spread out. Are there any alternatives? Well, great question, Karen. There is. If I think I understand what you're asking here, it's called LTL Freight, by the way. Dayton, Ohio, my sister, she was almost a date and flyer, visited the campus, loved it, but ultimately went to Miami of Ohio, a Go Red Hawks. Anyway, here's five advantages to shipping LTL Freight, and you're in luck because this article is already up on the site. Regardless of the mode of transportation, the question remains the same: how can I get my product to market as fast as possible and at the lowest cost available without sacrificing service? Like ocean or air freight, trucking is another extension of this timeless quandary. Long gone are the days when everyone owned their own trucks and those trucks went to a handful of warehouses and distribution centers. Shipping has become much more fragmented and spread out over further distances. A drop shipment here, a fulfillment center there, and all points in between. Shippers are presented with three different yet distinct options when shipping via

ground their choices are parcel LTL, which is less than truckload, and TL or F T, which is Full Truckload. If you're unfamiliar with shipping via LTL, unaware of LDLs of service, or simply like to know more, then keep listening as here are five key benefits of shipping LTL Freight. The first one: time to market. I mean the single greatest advantage of LTL Freight is that you no longer have to wait for a full truckload to get your product to your buyer. So instead of waiting for enough orders in a region to maximize your load or sending out a half-empty truck, you can book your goods immediately and have them on their way to the consignee ASAP. To less warehouse space: every shipment that you send out frees up space for new inventory within your warehouse. Why sit on freight and let purchase orders age and grow mold on them when you can churn product and ship on to man to your customers? Not only does this allow for a lean process flow within your warehouses, but it also

allows the consignee to purchase in shorter cycles, while reducing their own inventory cost with LTL. You're only paying for what you ship. Asterisks and the asterisk is there's all sorts of different SS Orioles and things to be mindful of in the capacity crisis. We actually have an episode up called the LTL capacity crisis Survival Guide. I believe we have an article. It's linked in the article that we'll be putting up about this or that's already up on the site, but check out that podcast if you're really into moving with LTL Freight now because there's more to be mindful of than just this sort of simplified description here, but that is with costs so assign Astra's your freight charges are based on the class space and weight that you take up on the truck instead of the entire load. These are substantial savings that actualize themselves not just over time but every time you ship. Now there's a myriad of ways to further reduce cost via consolidations common routing backhaul.

loads, etc. However, LTL Freight, as we mentioned, it's now that those capacity issues or surcharges. Service options number four: when negotiating LTL rates, carriers can and often will provide service beyond dock-to-dock. Shippers can specify needs like lift gates, inside pickup and delivery, cross-docking, non-commercial shipments, event notification, cargo tracking, etc. It also opens up you up to a new pool of carriers because the carrier for LTL is different than the full truckload carrier pool, and that's a whole other nut to crack to. Number five: tracking and security. Your buyer is going to want to know when and where they'll receive their shipment. Many LTL carriers provide tracking details that include event notifications, which will allow them to see in real-time when their goods are picked up, in transit, on time, delayed, and dropped off. Tracking can be tailored to customers' needs based on BOL reference number or even a date range. In addition, unlike Parcel services, your goods will often be palletized, which prevents damaged pilferage and other loss. One of

the keys to negotiating LTL shipments is knowing which carriers provide the service needed. How SSR real charges work and how to negotiate them understanding base rates FAK structures fuel service charges etc. A freight management company like a 4PL that understands your needs can unlock these benefits and act as your GPS on the road to success. And as I mentioned Karen, that article is already up on the site. I hope that we answered your inquiry. Peter M from Pawtucket, Rhode Island probably a big Paw Sox fan. Peter wonders what's the supply chain benchmark. Well, thanks for listening Peter. Supply chain benchmark, this is actually a good follow-up to the previous LTL question as a benchmark is what's going to tell you about your delivery rates times service etc. Versus market performance. We have an article on this that went live at at born encodes a com slash blog last week and it's called 5 reasons why you should benchmark your carriers. Go check that out Peter and we're gonna get to it right here right now. There's a sage old adage that goes

if it ain't broke, don't fix it. But adhering to that can be as timeless as a broken watch. A solution that may have fit at one point in your company's growth may not be the right solution today, tomorrow, next quarter, or next year. Freight is a rapidly evolving market that is seeing changes in capacity, growth, routing, service, and technology. All of these components combined are what serve to make a successful, efficient, cost-effective, and optimized supply chain. But how does a company know what is and isn't broken? Well, that's why we benchmark. Here are five reasons why you should be benchmarking your carriers. The first is growth. How has your company grown since the last time you sat down at the table to look at numbers? Is your freight spend the same today as it was when you selected your carriers? The partner who could handle 10 LTL shipments a month along two lanes likely isn't the same one that could handle 10,000 FTL shipments along 200 lanes. On the other hand, perhaps you've gotten smaller, nimble, and niche.

if that's the case, the reverse applies. Maybe the global carrier who moved mountains in the past no longer sees you as a priority, and maybe it's time to look towards other options more geared to your overall size. Be that big fish swimming around in that little pond that much room it's crammed in there. Well, additionally, how has your demand changed? Are you now drop shipping, plus going to warehouses as well as distribution centers? What are the demands and needs of your customers now? Leverage your growth to bolster every rung in your supply chain. After all, you're only as strong as your weakest link, and that weakest link could just be old decision-making capacity. Trucking, air, rail, and ocean freight are all flux markets that are controlled by capacity. How much empty space is in each one of those ships, trains, planes, and automobiles ends up dictating where the market rates will fall. Both the trucking and ocean freight industries have seen rapid consolidation as well as capacity issues. These conditions create openings for shippers to further maximize their

supply chain optimization by utilizing services with the most space, lowest rates, and best service by becoming a shipper of choice. Rates, the big R word. Rates. It's unavoidable and, for better or worse, is almost always the first number looked at when shippers are selecting service partners. So, when is the last time you reviewed your rates? Year-over-year capacity consolidation and fuel rates help to set the market, and while some modes of transportation have seen only incremental increases, others have seen major dips and drops. When benchmarking carriers, it's important to review rates across all lanes versus the market. A box to Shanghai that cost twenty-two hundred dollars just four years ago would be $1200 in today's market, for example. All carriers aren't created equal; the provider that has the best rates to one region may not offer the same value to another. Lastly, it all ends on the bottom line. How often have you received a quote only to be hit with a laundry list of surcharges, invoicing that would make

your cable company embarrassed with proper benchmarking. You will learn with the utmost transparency if these charges are fair, and if they're not, a great freight management firm can negotiate most, if not all of them away. Technology to knowledge, great but expensive to onboard. Right technology gone are the days when offices hummed and buzz with the cacophonous symphony of fax machines and dial-up modem connections. Now many of us have an on-demand workforce who need cloud-based access to real-time event notifications will in the field on their mobile devices. They need Freight visibility across multiple lanes in a multitude of nations. Many carriers are aware of this, and great strides in a tremendous amount of capital has been poured into technology to make that happen. What are your current service providers doing to bridge this technological gap, and what work are they doing to future-proof your supply chain? Now more so than ever is it time to make sure that your carriers' capabilities and plans for the future Co align with your companies. And lastly, we've got compliance regulations.

are changing every year across air, sea, and land. SOLAS was enacted on the oceans, and last year the electronic logging devices. Been a bevy of new tariffs, just 260 billion introduced. Each one of these changes creates new challenges for shippers, brokers, forwarders, and carriers. Compliance and reasonable care rests firmly upon the shoulders of the shipper. It's imperative that you audit your partners before Customs and Border Protection audit your company. Remaining compliant, though it not only means the reduction or elimination of governmental fines and delays, but it also ensures that your partners are doing their job. New regulations can also have new costs associated with them, and benchmarking your carriers. It's important to look at what they are and aren't doing, as well as how much they may be charging for any new regulatory services. Compliance is something that should never ever ever be assumed. That's it for this week's questions, but if you do have a question for consulting logistics, email me at tea dinner at a born in co.com. That's TD double-o any.

are at a born in co.com. I'd be happy to learn something new with you. My last piece here just really wanted to look really quick at CVS AA's International Road check results because I don't have any idea what else I would. I'd be able to talk about this but these are interesting. So a total of sixty-seven thousand five hundred and two level one, two, three inspections were conducted, of which twenty-one point six percent of vehicles and three point nine percent of drivers that were inspected were placed out of service. So these are violations that get you off the road. No carrier wants to face them. The top five out of service violations for vehicle were brake systems number one, tires wheels brake adjustments, cargo securement, and lighting. For drivers, it was hours of service, and that was big. I was 43 percent, wrong class license 21 percent, false record of duty status 10 percent, other not sure if that is nine percent, and then suspended license. We got eight percent on that one. And then for a HM DJ.

we got loading securement issues other HM DG shipping papers plaque cards and markings. The real big one that stuck out for drivers was the hours of service at 41 percent. Everything else was relatively close even the brake systems on vehicles that was 28 percent. Wheels tires was right under that at 19 percent. And this is the last data they have on here number inspections conducted. We had sixty thousand three hundred and twenty-one in the United States seven thousand one hundred and eighty-one in Canada sping of Kenna and you catch it check out last episode women and supply chain talking to our correspondent in the great white north that is Sarah Barnes Humphrey check it out salting logistics at at born co.com slash podcast or search consulting logistics on your favorite podcast player of choice. Looking to modernize and future-proof your supply chain contact a trusted advisor at a borne and company today for a complimentary consultation and learn how we have Cecily negotiated over five billion dollars in client freight expenses well future proofing their supply chains.

just visit aborneandco.com that's RNA and D co.com for this episode and all our previous shows. Silver Zbornak co.com slash podcast or search consulting logistics on iTunes Spotify or your favorite podcast player for consulting logistics. Hi, I'm Tim Doner. Say take care and happy shipping.

Episode 018 - Contract vs Spot Rates and Listener Mail

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