Tyler White Tyler White

The Contracts

This is less a post than musing….I’m working with the team to come up with a Managed Transportation Services RFP construct over the back half of the year. I’m compelled to drop this post as I see a consistent challenge with clients, and often the consultants they employ, in understanding what they want within the construct of Managed Transportation. Chuck loads over the fence to carriers? Great. Contract vs. spot? Super. Measuring KPIs such as on-time percentage and performance to MABD? We got you. Hold the carrier contracts? Absolutely, but do you know what that entails and what it means?

If there is anything one can take away from this post, understand this: THERE IS NO WRONG ANSWER. But too often I work with prospective clients and consultants who don’t seem to grasp what they’re asking for or understand what their organizational strategy is relative to core competencies, bandwidth, or general market awareness. It can be clear as mud, but the below outlines 4 models (one 3PL, three 4PL) which clients should consider when going to market (If someone is trying to sell a 5PL they are likely a graduate student at a foreign university based on my past experience and general LinkedIn readings).

A 3PL will often sell an outsource absent fees/working with other carriers as they are assuming 100% of the risk of claims, accidents, or catastrophic loss….so in a sense one could get Transportation Management without paying for it (*wink, wink*). The challenge is clients are generally outsourcing the risk to the 3PL in exchange for margin on their freight, and it may be managed by an office who has neither the talent, tools, or financial incentive to truly manage the transportation. If you have a $6M transportation spend and outsource it to a 3PL who says they can do it for $5.75M, it’s a win on rates. BUT you may be passing over dollars for dimes if you were to work with an actual TM provider who would charge you $250k in fees, but optimize that same freight at an order to order rate of 5.8M but find 1.2M in optimization savings via modal shift, multi-stop, or modal conversion. Having a 4PL construct which provides visibility and KPI metrics around total performance is a differentiating factor: membership has its privileges.

If a client knows and understands they want to go the 4PL route, the most frequent gray area is “who owns the contracts?” A 4PL holding the carrier contracts generally means you are procuring a 3PL wrapped inside of a 4PL. Clients get underlying visibility to the actual carriers and may have a procurement event to line them up, but the contractual liability generally remains with the 4PL. This means you’ll pay for Transportation Management as a standalone component, and the provider’s brokerage or carrier arm will procure carriers at a rate on the clients behalf. The fees aren’t going to cover the risk, so there is margin on top of the carrier rates. Again: if the client has no procurement arm, doesn’t understand the market, doesn’t have the back of house competencies to execute these services it can be more than a fair tradeoff. We operate with many clients in this model today.

Back when I was part of a team starting a 4PL at the dawn of the industry (p.s. #old), we were paid for and operated a standalone business unit which solely earned our keep on fees and fees alone. The client wanted an absolute, auditable “separation of church and state” between the TM provider and any carriers, including our sister brokerage which could compete and earn business with the client directly. Under no circumstances was our 3PL division to have any idea who the other carriers were or what they were being paid. This is majority of the business our team executes today. Again: this is a fantastic model for clients with actual transportation, procurement and legal departments equipped to play the market amongst multiple carrier providers.

The 3rd path is to have the 4PL/TM provider hold the contracts, but indemnify them from risk which may occur in the process of hauling freight. This model means there may be ancillary bumps in the TM fees for contract maintenance and back of house work, but there isn’t need for traditional margin as the contractual risk is being transferred to the underlying carrier executing the freight. I see less of this in the market, but it is a path to thread the needle for clients that want to shop carriers but don’t have the construct to assume full ownership of everything contracting a carrier provider entails.

As the kids say: “Thank you for coming to my TED talk”. This topic has been top of mind having had to clarify intent across multiple bids for Transportation Management lately. If you find yourself getting ready to go to market for 4PL/TM services, think about what best serves your organization and ensure potential providers understand what they should be pricing accordingly.

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Tyler White Tyler White

Transportation Tasseography

Those that have worked with me know one of the phrases I consistently pull from the well is “reading the tea leaves”. Since marrying my Lebanese/Canadian wife, I’ve learned the parallel practice of reading Turkish coffee grounds. There is an actual name for this process of divination via reading of leaves, coffee grounds or even wine sediments: tasseography. While my job title has to do with “sales” and “transportation management”: the crux of what our team performs parallels this ancient art.

Our client engagement begins by looking at a client’s present environment, as well as their strategic goals/what they’re attempting to improve upon or divine. The art portion of this job comes with the understanding we are performing a SERVICE, not delivering a PRODUCT. If we approached every client with the mindset our solution was a widget and all practices universally applicable, we could maybe sell well enough to come up with a standardized reading/portrait…..but I don’t know how many clients we’d retain or make happy. UsE 0uR Ai Sp0t BiD P0rT4l 4nD SaV3 M0n3Y!…eh, no... Nobody takes pride in or feels special about buying a mass produced tchotchke: we want art, substance, an extension of our personal brand or desires, etc, etc, etc. Compare the value of a fortune cookie vs. a palm reading: one is manufactured in a foreign factory and the other is personalized to you as an individual.

As such, the VALUE we bring is helping clients see their future and the output of their inputs and practices. Oh you want the future? The water matters. The cup matters. The proportions matter. The temperature matters. The time spent steeping matters. Mess any of these up and you divine nothing: you get sludge.

Oh you want Transportation Management? What’s your spend? What’s your carrier mix? What’s the average length of haul for common carrier vs. fleet? What’s your average order size and velocity and how does that affect your number of shipments? What do you send to spot vs. contractual? WE DON’T KNOW HOW WE WILL ADD VALUE. WE KNOW OUR PROCESS TO UNCOVER IT.

Bring your cup. Bring your ingredients. Our job is to run our chanyou, or Japanese tea ceremony, to showcase how our process is universal, but the outcomes are totally unique. As Notorious B.I.G. says “We’ve been in the game for years”. We have a step by step booklet for you to get as it were. An RFP of random quotes doesn’t offer a solution, that’s price. That’s your grounds or cup. What happens when you zoom out to see the value extracted from the whole ceremony? Our job is to be your shaman on the tea journey: how can you come out the other side with a totally new and unique vision of the business? THAT is the job of transportation management.

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FUM (Freight Under Management): What Does it Mean?

Representing a Philadelphia area company, a Schooly D/PSK reference seemed appropriate. The reality is it means lots of things, depending on who says it and what they are trying to sell. Is a bigger number better? Is it applicable to the problems you’re trying to address? As a shipper, it is often confusing to unwrap the layers/definitions of FUM and why any given definition should matter.

At its core, FUM represents client logistics spend on platform. Providers can say “We work with x number of companies, and those companies spend XX dollars on freight”. What gets confusing is HOW is that provider works with those clients on that freight spend, from a both a delivered value proposition and revenue standpoint. For instance, I’ve seen providers throw out “20B in FUM” figures. This could mean they have 20B of spend they execute as a freight broker, or 15B they execute in brokerage and 5B of freight moving through their warehouses, or 10B in brokerage, 5 moving through facilites/warehousing, 3B drayage and 2B in transportation management.

What does that mean? Maybe nothing, maybe a lot. The question a shipper must ask is “how is this relevant?” For instance, if 20B is the revenue of a provider’s brokerage, but you’re looking for agnostic 4PL services the provider may offer ZERO expertise. If you’re looking for someone to execute as the carrier of record, it may mean a lot. For 3pl/brokerage, I’d wonder does the provider have similar clients in like verticals, or managed across like geographic areas. If looking for a 4PL provider, I’d want to know the answer to those questions, but also does the provider have a focus on continuous improvement and helping shippers better manage their FUM vs. trying to infiltrate and supplant it (or in a positive light strengthen and broaden it). The question becomes what is the providers goal in getting your FUM, what are their incentives, and how do they price it. Transportation Management fee/subscriptions are different than capacity is different than brokerage revenue. As a shipper: MAKE SURE YOU UNDERSTAND THIS.

If you have further questions about FUM, how providers position their services to drive revenue, and what options exist in the marketplace, shoot me an email at tyler.white@nfiindustries.com or tjw@strategyenabled.com.

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TMS: SaaS or Sus?

I have nothing against client SaaS (Software as a Service) TMS engagements per se. We currently have the option available for shippers wanting to staff, train and build an in-house transportation team as part of their strategy. Over my 25+ year career I’d guesstimate ~15-20% of enterprise shippers choose this path (I also realize this is an “N of 1” for the Modern Wisdom or Huberman Lab listeners). The vast majority of enterprise organizations do not do this. It is not “wrong”, but it is definitely the exception and not the rule. My challenge with SaaS TMS engagements, and my general belief they may not be the best option for many shippers boils down to two factors. First: solutions for small to medium shippers are generally one-to-one tender solutions and the cost must be weighed against factors that aren’t “systems”. Secondly, in instances where TMS application is appropriate, Enterprise clients often receive poor implementation/staff training and the value expected never materializes. To reiterate, over a 25 year horizon of selling 3PL and 4PL solutions, the shippers I’ve interacted with are either looking for a 4PL provider, looking to outsource, or looking to have someone take over running and/or replace their TMS. The count of shipper's who’ve said “we implemented an enterprise TMS and everything about how we utilize and execute within it is going swimmingly” is less than 20%. Thus, as the kids say, there’s a high potential they’re sus (Also, if you see me in person and I actually say this word out loud you have my permission to punch me in the face. I am #old).

As with anything, cheap and easy has to be weighed against total value. I’ve seen many a small shipper beam with joy at the deal they got implementing an entry level SaaS TMS. Look I can choose amongst LTL carriers! I can pick a truckload carrier from the list! And kudos to them: if you aren’t a high-volume shipper or you’re currently managing everything in excel these are in fact great first steps. Every shipper should have a base understanding of service and cost. I applaud anyone on the journey who is using the best tools available from a budget and availability standpoint. There are several factors I would weigh as a small shipper however. How am I vetting the carriers I utilize within system from a contractual and insurance standpoint? Will the differential in a claims payout wipe out whatever money I saved in comparative LTL rates? Who is looking at minimum order quantity asking why am I shipping three different three pallet orders per week (or often the same day not master billed!), and what is the savings if I change my customer’s buying habits? Could I get faster service and fewer touches if I built pool point or multi-stop truckload shipments? When one has a spend of less than a couple million dollars in freight, I would weigh the cost of SaaS TMS against outsourcing to a 3PL with the tools and practices to best manage the business from a risk, process and invoicing standpoint. It is a tradeoff of the 3PLs margin versus your cost of systems and people, but you get access to the processes and risk mitigation practices of much larger shippers.

On the more enterprise side (5M to multiple hundreds of millions in freight spend), we’re left with the sub-20% who I‘ve seen successfully implement TMS and the other 80% looking back trying to figure out how they lit so much money on fire. As De La Soul says: “Stakes is High”. Implementation and training are often the first hurdle. Some risk is simply inherent to any type of systems or consulting engagement, TMS or not. Some can be chalked up to the difference between software people vs. logistics practitioners. However, the single largest challenge I’ve seen is the vigilance and rigor required to utilize the tool in a way that makes the juice worth the squeeze. Set aside wide variance on initial onboarding and training. Staff turnover, absences, process controls and lack of knowledge of best practices often leaves shippers with underwhelming results. Remember: garbage data in equals garbage data out. As a function of our sales process, when trying to gather historical data to understand where and how to potentially add value, I cannot tell you the amount of poor or lacking data produced out of a client’s existing TMS because of x, y and z reason that the business isn’t managed holistically. And it’s not just shippers that have this issue: we come behind other 3PLs and Transportation Management providers who sell a good game but didn’t train and develop their teams appropriately. If your transportation 3PL is really a trucking company, or a warehousing company, or a broker, or a tech company masquerading as a broker (historically brokers made money)……they probably view TM/S as a means to an end to make their money and the shippers wants, needs and deliverables are tangential.

The first two letters of TMS are Transportation Management. Systems are a tool to accomplish that goal. But tools are only as good as the training of the practitioner. Spike Lee/Mars Blackmon was wrong: it was not in fact the shoes. When evaluating whether or not to buy an off the shelf TMS or SaaS subscription, think hard about if it’s a shiny object or if it’s truly a tool which can be wielded in a manner that will produce the desired result. Everyone in the market has Transportation, everyone can buy Systems, but the crux is who will have the Management. As a shipper: take strong inventory as to if this expertise and training exists in house, or should it be a larger factor in what solutions you go to market for. I would argue it should be the largest.

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Congratulations. You Played Yourself.

I’ve harassed my children more than once with the above phrase. I take perverse joy in them groaning about their old Dad quoting DJ Khaled (How do you do fellow kids!). Little do they know I’m so old I’m really quoting Ice T. Maybe this just confirms it’s a timeless truism. Hubris gets its comeuppance.

The deluge of logistics marketing available on LinkedIn is truly outstanding. We continue to bounce around from the hottest new thing or tool, wrapped in the latest verbiage so as to be part of the collective narrative’s catchiest buzzword. This cycle revolves heavily on Artificial Intelligence: how companies are using it and what it means for their clients. I am not a luddite, nor am I dismissive of the productivity gains available. I’m not so proud that I can’t admit that I don’t know what I don’t know. Our team uses it to automate non-value add tasks and will continue to adopt it where it can lower our cost to serve and increase said productivity. HOWEVER: I personally find it maddening to see AI hyped as *the* differentiating factor in delivering client value.

There are a multitude of thoughts regarding AI: will it replace personnel wholesale or does it free them from the mundane in order to focus on value-add tasks? I personally lean towards the latter. I don’t know if I’m right or not, it’s probably too early in the game to tell. Maybe the only job that will matter in 15 years is writing AI prompts. But I am sick of watching companies mass enroll employees to regurgitate “HoW AI MaKEs uS DifF3nT” posts. Often these posts come from industry carpetbaggers who talk a good game until the Series Z funding runs out. Potentially worse are existing providers who drink the Kool-Aid, focusing on the platform but turning around to fire their top salespeople and account managers to save costs. In each example: who is left to glean the insights? Who will manage exceptions expeditiously and judiciously? Who provides thought leadership? In the words of David Goggins: “Who is going to carry the (curses redacted) boats?” For some strange reason you can’t get your logistics providers data scientists on the phone.

We don’t live in a day and time where a logistics provider can expect to go full John Henry. But I’d rather be or rely on a provider who sells me on developing their PEOPLE and their tools (of which AI is one). I’d rather be or rely on a provider who hammers the message on their CULTURE. I’d rather be or rely on a provider showcasing their partnerships with other clients which are built on RELATIONSHIPS (As my colleague Dave Broering has written across the top of his whiteboard: they’re all that matter). Logistics is not a product industry: it is a service industry. People, culture and relationships are still the things moving the needle when it comes to adding value. They are not easy, and they can’t be bought off the shelf. They cannot be developed in a lab. So please don’t gas me with how AI is being used today in a transformative way for logistics and/or Transportation Management. It’s a disservice to potential clients and a way to set everyone up for underwhelming failure.

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The Journey

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Welcome to Strategy Enabled. I hope you find supply chain and transportation stories, interviews and approaches that are relatable to your professional journey, that enlighten and inform, and lead to more questions as to how best execute your strategy. We’ll discuss tactics, technology and processes by which others have grown their careers, empowered their companies and solved the problems of logistics. As you have thoughts on the applicability of what you see, please feel free to contact me about how to best leverage what you’ve read. The goal remains: Solve Problems. Add Value.

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