Transactional shippers ask “Can you save me $50 on our next shipment?” Strategic shippers ask “Can you help us save 10% on our $1.2 million dollar freight spend?”
There are two types of shippers in my world, transactional shippers and strategic shippers.
Transactional shippers don’t commit to any one logistics company. They are price driven and will usually quote multiple logistics providers to ensure they get the lowest price. Transactional shippers see logistics services as a commodity, so price is the only differentiator. Transactional shippers are willing to risk good service, damage issues and billing problems for a really great price.
Strategic shippers commit to one or a few top notch logistics companies. They consider their logistics function as critical to their success. Strategic shippers will spend time learning, planning and mitigating logistics risks. Strategic shippers are risk adverse and only work with top logistics companies. Strategic shippers are price sensitive, but they recognize that damaged shipments, billing issues and service issues are costs that must be accounted for. Predictably, strategic shippers pay less for freight and get better service.
Typically, logistics providers like me struggle to work with transactional shippers. We are all looking for new clients so we try to educate and convert a transactional shipper to a strategic shipper. Sometimes the conversion works, but typically not.
The 7 Differences between Transactional Shippers and Strategic Shippers
- Transactional shippers typically don’t build the solid relationship that strategic shippers do. People build relationships with people they work with on a regular basis. Good trusting relationships lead to better business results. Stephen Covey even wrote a book on the subject, The Speed of Trust.
- Strategic shippers, who commit to one logistics company, have a chance to build relationships. If a logistics provider has a regular client, they are more likely to visit, assign an account manager, and invest in the relationship. Of course, just because a shipper works regularly with a logistics provider doesn’t ensure that a good relationship will develop. However, being transactional guarantees that a relationship will not develop.
2. Account Familiarity
- Transactional shippers are a mystery. Logistics providers will do their best to understand the shipper’s requirements, but the on again, off again relationship limits understanding.
- Strategic shippers get better service and lower costs because their logistics provider understands their unique requirements. Logistics companies working closely with a shipper develop account familiarity. Account familiarity enables the logistics provider to learn about the shipper preferences, personalities, working hours, freight characteristics, dock rules, etc.
3. Total Cost of Shipping
- Transactional shippers don’t consider the total cost of shipping. They make purchasing decisions based solely on the price of the freight. This approach is short sighted because it does not consider the cost of freight damage, billing issues, on time performance or customer service.
- Strategic shippers may occasionally pay a little extra for a shipment, but ultimately, their focus on total cost results in lower logistics costs.
- Transactional shippers don’t usually get freebies because they are not a preferred client.
- Strategic shippers get free services that transactional shippers don’t get. Some 3PLs (like the one I manage) will expedite a shipment with our own money to ensure that our client and their client is happy. We can justify the cost for a regular customer, but it can’t be justified with a client who hasn’t committed to us.
- Transactional shippers can’t take advantage of software provided by outside logistics providers. Having your shipments information stored in multiple software program is cumbersome and of little value.
- Strategic shippers commit to one logistics company so they can use the provider’s web based software. Software drives process compliance, reduces cost, minimizes errors and ultimately streamlines the freight buying process. Once a company’s shipments are stored in one software, the data can be analyzed to gain new insights.
6. Measurement / Key Process Indicators
- Transactional shippers may track cost, but typically they don’t measure or use key process indicators (KPIs). They view all carriers as a commodity, so why bother measuring.
- Strategic shippers recognize that you can’t effectively manage something that you can’t measure. Strategic shippers use KPIs to drive down cost and improve service. If a company doesn’t value KPIs, they won’t value a quality logistics provider.
Logistics Key Process Indicators
7. Logistics Supplier Selection & Vetting
- Transactional shippers are easy to sell to. They will let you move today’s shipments as long as you can beat the lowest price of their existing carriers. Transactional shippers don’t care about references or your processes.
- Strategic shippers are very slow to bring on new logistics companies. They will insist upon multiple meetings to learn about a provider’s service, costs and reference clients.
Bottom Line: Shippers be strategic. Logistics providers become a company that shippers want to commit to.
Question: Do you agree?