Mutually Beneficial Rate Negotiations for FTL Shippers: “Asymmetric Information” and Why it Matters

Emerge Editorial

If there’s one buzz phrase that is overused in business, it has to be, “win/win relationship”. Regardless of industry, when it comes to conversations between customers and suppliers, it’s not long before someone wheels out the tried and true line, “we create win/win relationships with our partners”. Clearly a noble objective, one can only wonder how much time folks put into defining what win/win really means to them and more importantly, what it takes to achieve it. 

As is the case in most commercial situations, win/win in the Full Truckload world means that the shipper and carrier gain a combination of service, operational and financial value that they feel is either equal to, or greater than, the cost of providing/receiving those benefits. In addition to these components, one can add other elements like ease of doing business, strong communication channels and professional respect between shipper and carrier. 

While there are many steps to creating win/win relationships that are founded upon mutually beneficial rate negotiations, one element of the dynamic that is often overlooked is the presence of, “Asymmetric Information”. Applicable to scenarios where there is a negotiation between at least two parties, this phenomenon exists when one negotiator has greater access to relevant information and as such, has a distinct advantage over the other party. 

In spite of the fact that FTL shippers have historically done an admirable job of negotiating with truckers, it is the contention of this blog that Asymmetrical Information is present in shipper/carrier relationships, and that when it comes to accessing FTL market data, the advantage goes to the carrier. Upon pointing out how this dynamic works, we’ll then present tools that shippers can use to remove Asymmetrical Information from their negotiations.   

How Asymmetric Information impacts mutually beneficial FTL rate negotiations

In the case of both shippers and carriers, each is going to enter into an FTL negotiation armed with their own experience, expertise, perspective and of course, market knowledge. Starting from the shipper’s side of the table, it’s understandable that their entire viewpoint is angled towards their own FTL model where they possess a deep understanding of lane pairs, volumes, Route Guide requirements, historical costs, etc. 

While recognizing that shipper executives may add value to the process by virtue of their own experience, the simple fact remains that the shipper’s approach is framed within its own FTL network. By definition, that means that their worldview is not only limited to their lane pairs, but to the carriers that have historically served them. In that sense, it can be argued that a shipper’s ability to gain broad access to market intelligence is actually constrained by its shipping model.  

FTL carriers, on the other hand, have the potential to take advantage of their role as a service provider to access more data than their shipper counterparts can. For example, and this applies to carriers of all sizes, they (should) know who their competitors are, as well factors like their equipment count, pricing approach and service reputation. Bearing in mind that truckers hire talent from one another all the time, it’s not difficult to find out what the competition is up to.  

In addition to competitor analysis, carriers also have the advantage of dealing directly with multiple shippers. With the right approach, there is no better source of market intel than current customers, as well as shippers that carriers pursue for new business. Basically, if a carrier’s sales and ops teams are doing their job, they’ll know exactly “who’s who and what they do” in their target markets, and use that intelligence to their advantage during a negotiation.

So, whereas a shipper needs access to multiple sources of market data that will help them in a negotiation, they’ll always be limited by the boundaries of their own FTL network. Conversely, carriers that take the time to understand their competitors, as well as the profiles of existing and potential customers will be better positioned to acquire relevant information. Logically, when one party has a data driven advantage, true win/win relationships become harder to develop.      

Traditional once per year RFPs do very little to level the playing field  

Up until fairly recently, shippers have tried to stay in tune with market conditions and avoid being on the wrong side of Asymmetric Information in two ways. First, savvy logistics directors always find time to meet with carriers to not only learn about that particular trucker, but to solicit market information, too. After all, shippers know a “two way street” when they see one and can garner intelligence from a carrier just like truckers try to do with them.   

The constraint here is that even in the age of video meetings, there’s just so many carriers a traffic manager can meet with in a week. Also, some of what’s offered up is more opinion than reality and separating the facts from the fluff can be tricky. With that said, shippers should definitely meet with both current and potential carriers as they are a solid source of information that can be put to good use when trying to engage in mutually beneficial rate negotiations.

Historically, when it came to staying on top of market conditions, the big event was the yearly RFP conducted by almost all shippers. That was when twenty or thirty carriers were invited to a bid and in one fell swoop the shipper was expected to set the stage for an entire year’s FTL activity. An accepted practice due mainly to tradition and a lack of other options, yearly RFPs are also constrained, this time by the limited number of carriers invited to participate. 

When you really think about the dynamics of the above scenario, shippers run the risk of being doubly disadvantaged; first because of a lack of sufficient market data throughout the year and then during the bid itself because of the small number of invited carriers. Luckily, there are now ways in which shippers can arm themselves with accurate information that neutralize Asymmetric Information, thus giving them a better chance to negotiate mutually beneficial rates.

Building win/win relationships through the Emerge Freight Procurement Platform

The Emerge Freight Procurement Platform features several tools that put shippers and carriers on equal ground when it comes to market-based service, capacity and rates. A recently added feature is the platform’s benchmarking tool that allows shippers to compare market rates with their current prices. Gone are the days of “making a few calls to see what’s going on” because benchmarking puts quantitative data at the fingertips of shippers in mere seconds. 

In addition to benchmarking, the Platform also allows for spot quotes. When it comes to specific lanes, there’s no better way to align service needs with capacity and rates than by receiving quotes from a pool of more than 45,000 marketplace carriers. No longer constrained by the small group of truckers they normally get quotes from, shippers can use the Emerge platform to receive quotes from multiple carriers, the totality of which arms them with precise numbers.

One of the most impactful things a shipper can do to foster mutually beneficial rate negotiations is to conduct multiple bids per year on the Freight Procurement Platform. Enabled by Emerge’s proprietary algorithms, there is no longer any reason for a shipper to conduct one bid per year. Equally advantageous for shippers and carriers, everyone benefits from shorter RFPs because the time frames are shorter and both parties know more about their current needs and capabilities.   

Apart from the frequency with which a shipper decides to conduct shorter RFPs, they can also decrease Asymmetric Information by receiving bids from a broader pool of carriers. Because every aspect of the shorter RFP process is automated and shippers determine who sees a bid, they can select the number of invited bidders to fit their needs. With the ability to invite both incumbent and new carriers to a shorter RFP, the perspective a shipper can gain is now limitless. 

In the final analysis, a company’s chances of building win/win relationships depends on the ability to negotiate agreements that truly are beneficial to both parties. A lot easier to talk about than to actually achieve, that process starts when shippers and carriers are on even ground when it comes to accessing mission critical data. Without that equilibrium, the objective of creating win/win partnerships will remain elusive.  

In spite of being hobbled by the constraints described in this blog, shippers have historically done a remarkable job of negotiating rates with their carrier base. Now armed with a combination of their own expertise and the capabilities of the Emerge Freight Procurement Platform, it’s possible for shippers to maximize their access to market data, avoid Asymmetric Information and enjoy the fruits of mutually beneficial rate negotiations! 

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