By Clifford F. Lynch
Though itís billed as a way to minimize risk, a bold new plan to bring some
stability to the transportation market could have precisely the opposite effect.
The talk in transportation circles these days is all about a proposal to trade
transportation capacity futures to protect pricing and availability. Citing the
capacity shortages that have plagued shippers in recent years, advocates of the
capacity futures market are promoting the idea as a hedge against risk: Buy it
now and use it later when you need it. If you donít need it, sell it to
someone who does.
But letís not get lured into the commodity trap. While the idea might sound
good, we need to keep in mind that what works for soybeans and pork bellies
might not work for transportation.
In its simplest form, a commodity is an item that has value and is produced
in large quantities with uniform quality. Whether itís something tangible like
oil or intangible like electricity, a commodity is a homogeneous,
undifferentiated product. When it is traded, it is solely on the basis of price.
Some would argue that transportation service fits that category. As they see
it, transport service is just a way of getting something from point A to point
B. It doesnít really matter who provides the service, as long as it gets
I submit thatís exactly the kind of thinking that could get shippers in
trouble. As those in the business know, thereís much more to transportation
than simply hauling something between two points. Itís also about on-time
pickup and delivery; itís about planning and satisfying shippersí needs in a
mutually satisfactory way. Above all, itís about relationships.
Granted, there actually is a futures market for ocean capacity, but thatís
quite different from domestic truck capacity. First of all, there is less
variability in the product. In ocean service, standard-sized containers move
over standard routes on predetermined schedules. Although there may be some
service variability due to weather or unforeseen circumstances at ports,
container movements are fairly predictable. This is a far cry, however, from the
type of capacity needed to move a shipment of hair dryers to Wal-Mart and
deliver it within a two-hour window.
If the experience of the last three years has taught us anything, itís
this. In a crunch, the shipper who comes out on top Ė the one who manages to
find a carrier when it needs one Ė is not the one who wins a bidding war, but
the one with the best relations with the carrier. For evidence, you need look no
further than a study conducted last fall by DC Velocity and the
Warehousing Education and Research Council (WERC). The studyís results
confirmed that during the previous year, those shippers who had fared best were
those who had developed collaborative relationships with their carriers. They
were the ones who gave carriers timely projections of future shipments, who held
regular meetings with their carriers, and who tried to be better customers in
It is important to keep in mind that a shipper and a carrier have basically
conflicting objectives. True, both want (or should want) their customers
serviced well, yet they also want to maximize their own profits. Working through
these conflicting objectives to everyoneís satisfaction requires some careful
For a number of practitioners, managing a global supply chain has gotten
quite complicated. They are encountering new technology, new cultures, new
currencies, and in some cases, new modes of transportation. What we donít need
is another impersonal technique for managing transportation. Transportation has
been, is, and I believe will continue to be a relationship business.
If you still want to trade something, try pork bellies Ė that market looks
a little less volatile than the market for feeder cattle.