Freight transport value proposition that can actually boost bargaining power

The ability to effectively influence the other side in a freight negotiation to secure a better bargain, a.k.a. a business’s bargaining power, depends on many factors – customer structure, costs, suppliers, competition, industry concentration, strategic partnerships and the current set of economic conditions. It is also an insightful measure of the competitiveness of an industry. New technologies have largely been promoted as a strategy to optimize, streamline and automate the internal processes of a freight transport and logistics business to the end that costs are reduced. But is it the only way to sharpen the competitive advantage of a logistics business? From better capacity utilization which when scaled-up could leverage supply vs existing demand, through enhanced reliability and extended development of service which improves the overall supply-chain performance and resilience, to higher agility and faster adaptability to market dynamics, a tool is only as good as the skillfulness of the hands that wield it.

Buyer’s perspective. Before digging deeper into the inner workings of the industry that forge its competitive edge, let’s take a look from the perspective of the buyers of freight transportation and logistics services. The way customers perceive the value proposition of a transport business may differ significantly and often come as a shock to business owners and sales teams alike. A lot of market segments will always push for the lowest prices but long-term and large-scale buyers might value much more the reliability of service, the lower risk related to the logistics suppliers in their portfolio or the resilience that the offered transport solution adds to the system as well as the lower costs incurred in the carrier daily management. Getting to know your customers and the customers that you want to reach always pays.

Indeed, reliability of service emerges as the most crucial factor that makes a business offer preferred over others with an overwhelming 2/3^rds  of our expert respondents confirming it as their leading selection reason when buying freight services. Reliability is valued much higher than any loud marketing or tech perks, as nothing is more exhausting than having to search for transport alternatives in an emergency after having spent hours over hours of evaluating and selecting logistics suppliers that fail to deliver on time or as per requirements. Put in perspective, less than 1/5^th of the buyers will go for the lowest price, as their merchandize is more sensitive to cost rather than harm or delay.

Reliability of service. The true challenge to businesses, which strive to improve their competitive advantage in a heavily competitive freight transportation market, is how to improve the reliability of their service in such a way as to become the preferred suppliers by their customers. Approaches need to dig deeply in the core organization and operations of the company and must cover both physical and human resources as well as internal processes and daily communication with customers.

Now, what makes a freight transportation service truly reliable in the eyes of the buyer? Certainly well maintained fleet and warehousing facilities together with a developed network and trained truck and FLT drivers is a must that is considered the baseline in the industry. However, to set your proposition apart from the competition, your business would need to take at least a few leaps further from that baseline. More than half of the professional buyers we asked responded that improved and high-precision shipment tracking and cargo monitoring packed with predictive shipping times, delays and ETAs that they can trust are the stocks in high demand from today’s freight transport and logistics industry.

The second most import characteristic receiving 43%of the votes, would lie in the way a freight transport and logistics business communicates with its customers during and in-between shipment orders. Anticipation techniques, timely updates, proactive issue resolution and key performance metrics all add up for that much needed premium customer service that really enhances a buyer’s contingency plans.

Notice how prediction, anticipation, proactive communication and metrics are closely linked with supply-chain planning? Planning that can actually be trusted. And trust is key when reliability is at stake.

Development of service. On the other hand, markets, customer needs and competitive offers are always shifting and twirling about, pushing for new segments or efficiencies. Staying frozen and unchanging might as well mean falling behind competition. As contradictory as it may seem, strengthening and maintaining the reliability of freight transportation service comes hand in hand with the thirst to develop it further. Dimensions and opportunities to do so are certainly vast. From adding packaging and labeling to the core service, through providing same-day or express delivery options and innovative last mile solutions by autonomous vehicles, connecting vehicles in the supply-chain network by IoT-enabled sensors, polishing customer service with customized solutions, 24/7 support and proactive issue resolution, to automating order processing, PODs, invoicing, etc. and reducing both lead times and empty backhauls. Efficiency is no doubt the holy grail of operations with 37% of our expert respondents picking it over value-added services, creative features, innovations, enhancements and smart connected technologies but service is no longer just driving the cheapest from A to B.

Seller’s perspective. Sitting at the other end of the negotiation are the freight transport and logistics sellers who have a dilemma on their hands as well. Highly dynamic and often demanding quick decisions, sales often mean to balance between customer requirements and own business goals. Between short-term results and longer-term relations. Building loyalty with a large volume customer may be worth the investment of time, effort and some sacrifice of current results while spot sales are always about the moment now against competitors’ pressure. On the other hand, becoming dependent on a single ordering customer is likely to increase both risk and pressure on prices pushing for regular productivity discounts.

50% of the sellers we asked confirmed that the business volume of a customer exerts the biggest impact on negotiations. Volume and the average order value would let sellers estimate the expected account revenue and margins, which would ultimately affect their dynamic freight rate pricing decisions. Pressure from competitors is also a force to be reckoned with and 26% of respondents put it first. The dynamics of competition, the clash of competitive advantages and the exposure of a business to the forces on the market shape the shifting dominance in bargaining.

Forces. Getting the upper hand in any deal depends on a complex set of factors such as the alternatives available to sellers and buyers as well as how patient each of them can be with the costs incurred in daily operations. Pressure from market demand on one side, from established competitors one the other and from suppliers and the operational costs on the third all set in the current regulatory and economic conditions leave a tiny window of opportunity where sellers and buyers can meet and close the deal. A fragile equilibrium challenged constantly by new competitors and technology advancements sometimes causing massive underwater shifts in industry concentration.

Economic conditions. How wide is that window where forces balance each other, though? The European road freight rate index saw in Q2 2023 and for the first time in years, spot prices dropping below contract rates, which signals a high compression of the stretch of land where sales operate.