Why Logistics Companies Get Away With Extra-ordinary Practices and Pricing?

global supply chain group

No other industry, barring IT, treats its buyers with as much disdain and contempt at the logistics industry. To make it palatable they mix just the right amount of respectful words in between.

If you are not exposed to the world I am talking about, I am sure you would find this hard to believe, just as I did when I first saw it.

Read on, as I show you some real life stories to prove this.

If I had to describe it with an example – I would quote the instance of “Jeeves’ disdain for Bertie Wooster in PG Wodehouse’s books”. It is disdain one reserves for the incompetent, mixed with “pretend” respect one must give someone at a higher station.

A Difficult Attitude…

The attitude seems to be – our work is akin to black magic here, and only once you understand it well enough, we will deign to talk to you as an equal.

The language used, the archaic terminology, the gentle explanations, and even the gestures reflect this attitude.

What is even more shameful is that, towards female buyers, this attitude is particularly accentuated and entrenched. Sometimes it is so pronounced that even someone who is male, comes from the industry and has a relatively thick skin (such as I am) cannot help but notice this. Once you start noticing it, you will spot this attitude immediately every time you encounter it.

The only persons who the IT and logistics industries exempt from this subtle mix of contempt and respect are those who spent years within their own industries before switching to the buyers’ side.

… Pushes Up the Price

I first encountered this problem about 19 years ago, when I was touring one of the provinces with the Global Head of Supply Chain. He was reasonably happy with their main logistics service provider, but 3 out of 4 regional heads (all 3 of them happened to be females) continued to complain about apathy and arrogance from the very same logistics service provider.

One of them had gone to great lengths to prove this point to us. I could already observe in meetings that the vendor’s key employees were openly dismissive of her while being overly deferential to her boss. She arranged conference calls with the other 3 regional heads – all of whom recited a very similar story.

Later on, I had an opportunity to observe two of these regions in person. All three regional supply chain heads also showed me an email trail proving their point.

Logistics Cost Reduction is Difficult

I was determined to get to the bottom of this conundrum because it was bound to affect the success of our cost reduction project, with massive targets.

It turned out that because the Global Head was ex-military logistics (in a fairly high rank), he was accorded special respect from the logistics service providers. One of the four regional heads was also an ex-military logistics person, and he was exempt from the special attitude that the remaining three regional heads met from the logistics service provider.

I am glad that the boss gave her (and her colleagues) permission to switch to vendors of their choice as they saw fit – so long as they met the cost reduction, and operational excellence, targets.

Prove Your Worth To Get A Fair Deal

Since then, I often had a chance to study this problem at close quarter, and it was not a unique attitude from just one logistics services company. Seems like something similar is happening in many places – always subtle, and barely detectable.

The closest example I can think of is of a taxi driver who asks you a couple of innocent sounding questions as soon as you enter the taxi at the airport – such as ‘would you like me to take the tunnel or the bridge?’ while watching you keenly.

If you reply, take whatever route you think is the best at the moment – he knows that either you don’t know the answer, or don’t care about the fare. That is when the fare goes up by as much as 83% (happened to a friend from the USA who came to our place).

It appears that every time I use the magic words, “take the freeway and then xyz exit” – I would pay the minimum fare, and always the same fare (within 5% interval). Only 1 in 10 taxi drivers would probe further to see whether I knew what I meant, or whether I was just told to say these magic words.

Here comes the critical part:

If you do not have the time, or knowledge to enter into a spirited enough discussion to prove yourself equal to the vendor, you end up on the losing side of the bargain.

Now, if you have read this far, you also know that this situation is not unique to logistics vendors. So, you are likely to ask, what is so special about logistics.

How Big Is the Knowledge Advantage In Logistics?

I would not write about it in this context if logistics vendors were not unique in how they use this tactic. More so than the taxi drivers (there is a reason why taxi industry is regulated in most geographies for a very long time) or anyone else, they are likely to use the lack of time or knowledge to their advantage.

Lots of people ask me from time to time “when will an UBER OF LOGISTICS emerge?” My answer is never – because logistics is not a controlled industry like the taxi industry is. I might elaborate on this point in another article at some point, but let us revert to logistics for the time being.

So, is this disinclination or inability to prove your stripes the only reason for logistics company overcharging?

Clearly, No.

But, before we discuss the full answer to that question, ask yourself how else do logistics companies get more from you than you thought they would?

Have you ever read a logistics company’s ‘standard contract of carriage’ which they try and enforce on everyone – even their largest customers?

If you have not, try and get hold of the actual bill of lading terms and conditions, and make a list of all the contingencies it covers, and who it covers.

Then try and calculate your exposure in each instance by probability of that event – just to get an idea of your total exposure. No risk management department ever analyses this risk.

For the next exercise, get hold of 5 random logistics company invoices – and try and reconcile the logistics rates from the contracts and activities from the ERP or any of your other systems to the actual logistics company invoices.

Good luck with that endeavour! It is an intensely educative experience for most senior executives.

Finally, a third exercise – get a list of all on-charges (unexpected, or unknown charges that were put on after the shipment was dispatched) for a period of one month. Try and get a satisfactory explanation for each of these instances.

Again – good luck. It is also an intensely educative experience for most senior executives.

I am not going to put the actual numbers, or data in a public forum – but clearly what logistics companies charge each other, or even a buyer who is logistics industry insider is far less than what they charge when they can get away with anything.

What the Traffic Will Bear

The rule, in those last cases, is “WHAT THE TRAFFIC WILL BEAR.” You must google that phrase to learn its history and full connotations – especially if you have not heard it before.

But, in practical terms what does that phrase mean?

In simple terms it means “try and get everything that is the difference between the price of the goods at the source and the price of the goods at the destination.”

Let’s now come back to the question asked earlier. How do logistics companies get away with all this?

I have written about continuity of supply elsewhere in these blogs. A number of things come to play in every situation where continuity of supply issues rear up their ugly head.

Continuity of Supply is Critical

Logistics is clearly a continuity of supply issue for most companies. And, it is very easy to play on the smallest fears and lack of knowledge to push their advantage. There is no point in repeating what I wrote elsewhere. The best way to access that information is to read it there.

Does that mean all logistics companies are evil.

The taxi driver mentioned above, who brought my US friends from airport and charged 83% higher just because it was their first time in Australia, was not evil. He has just perfected a way of getting paid highest possible amount in most circumstances. My friend who paid the fare – did not even mind paying that high (in his mind that is what he would have paid for a similar ride in the USA anyway).

Problems arise only when even the largest corporations in the world overpay to a gross extent, and put up with shoddy services – only because they do not know any better.

I write a lot about freight industry because I have spent all day, every day, for the last 36 years (barring college time) inside a freight company, or dealing with one or more of them.

And, I know how big the sums involved are. I have seen companies with freight spend larger than some of the biggest companies on ASX make the very same basic mistakes.

Here is Your First Step To Take Control

That is why I have written two reports to help executives who do not have the wherewithal to directly engage my services. You can access the HANDBOOK OF FREIGHT MANAGEMENT SECRETS here.

IF YOU ARE ACCOUNTABLE FOR PURCHASE AND MANAGEMENT OF MORE THAN $100K OF FREIGHT IN A YEAR, without the inside information in this report, you could easily miss out on significant cost reductions, reduced contractual liabilities, and better shipping performance.

Buying Freight is Complex and Difficult!

It takes more than getting three quotes, and picking the best one, in-fact it is ineffective doing it this way. The quotes you are getting are all equally bad because everyone knows you are merely going through the exercise for the sake of it.

Get a Head Start With Most Advanced Thought Leadership:

  • Executives face constant pressure to jettison costs wherever they can in their business. This report tells you how to get an upper-hand in your freight buying practices.
  • Most bills of lading (freight contracts) are one-sided, favour the freight companies and use archaic language. Yet buyers are forced to sign. WHY?
  • There is a glut of ships and trucks, yet they are never available when you need them; WHY?

… and much more

Note:

This report also provides more information about the detailed report above – which is also available for purchase: A Handbook Of Freight Management Secrets – Savings, Service, And Supply Chain Continuity.

If you want either of these two reports – send me an email on info@globalscgroup.com with your full details.

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Vivek Sood

I write about "The Supply Chain CEOs", "The 5-STAR Business Networks", and, how to "Unchain Your Corporation". In my work, I help create extraordinary corporate results using several 'unique' supply chain methodologies. Contact me for interesting, high impact projects, or, to get access to my IP for creating transformations using these methodologies.

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