As companies expand globally through mergers or organic growth, many are faced with the decision of whether or not to combine logistics teams and apply a universal truckload procurement strategy across multiple regions. However, differences between markets do require adjustments. To obtain the most effective results, best practice requires adaptations to truckload procurement strategies. In this post, I’ll shed some light on the chief differences between Europe’s truckload procurement practices and those in the United States—and why it matters.
When U.S. companies acquire European entities, or when European companies obtain U.S. organizations, it’s critical to help them plan for the factors that differ between the regions and will impact their optimized truckload procurement strategies and expectations.
We’ve done research to understand those differences. You can find a full explanation of the findings in our two-part white paper, Improving Your EU and U.S. Truckload Procurement. Part 1 offers insights on carriers and drivers, while Part 2 focuses on route guides and peak seasons. But for starters, here are a few highlights to consider as you think about your procurement strategies.
- Small carriers own most of the equipment in both regions, but levels of cooperation are stronger between EU carriers.
First, let’s look at the similarities between regions. Carrier demographics and size are similar. Large carriers in both markets prefer freight with low demand volatility and high-density corridors, and to work directly with the shipper. And large multinational companies in both regions typically set a maximum number of core carriers they will use. At the same time, large shippers typically do not work with the largest carriers alone, since that would limit their ability to obtain enough capacity.
In Europe, about 90% of the shipments managed by large EU carriers are actually subcontracted to small carriers. Using one of the large carriers or 3PLs may be the only way for shippers to aggregate the largest pool of available equipment in their markets while leveraging freight volumes for more advantageous rates. In the U.S., independent owner operators may sign exclusive contracts with a carrier for one year or operate without structured agreements, as their business model warrants.
The implications of these differences have a greater bearing than you might expect on procurement bids, route guide construction, and contract awards. Part 2 of the white paper explores this in greater depth.
- EU shippers tend to pay a higher cost per unit to ship than their U.S. counterparts.
The most common equipment in the EU—the curtainside—is shorter in length, width, and height than U.S. dry vans. EU pallets are 22.5% smaller than those in the U.S.
In addition, fuel averages 59% of an EU carrier’s total operating cost; compared to 25% for U.S. carriers. So the cost of fuel has a significantly greater impact on EU carriers’ costs, and is passed along in their rates to shippers.
When you combine the higher fuel costs with trailers that have less space overall, freight cost per each (pallet, weight unit, or case) tends to be higher in the EU than the U.S. That needs to be considered as you plan and compare transportation costs from one region to the other.
- While cabotage regulations apply in both regions, EU cabotage makes equipment more widely available for EU shippers.
Cabotage regulations apply in both regions, but how it is employed differs, with implications for how you should approach truckload procurement.
European cabotage is much less restrictive compared to the U.S. A small but growing percentage of tonne-km is hauled through EU countries using cabotage truckload. Drivers can carry three loads in seven days in a destination country. After that, they can either return empty to their home country or take a cross-border shipment.
EU shippers benefit from cabotage in several ways:
- It makes drivers and equipment more readily available throughout EU.
- Technology helps carriers find freight outside their territories.
- Cabotage enables competition between carriers in the EU, which holds down costs for shippers.
EU cabotage makes drivers and equipment more readily available throughout Europe. EU shippers can more easily find carriers who prefer their lane and product types, and see generally stable rates.
- EU shippers are more risk averse when it comes to rates than their U.S. counterparts.
EU shippers negotiate with carriers for an average rate in a lane for the year and expect carriers to hold to that rate for the entire year, regardless of freight surges or lulls in the market. Shippers may also renegotiate on the spot market for lower rates as the year continues. These strategies tend to result in generally stable rates for EU shippers.
The current availability of European capacity and drivers gives buyers considerable leverage in covering their shipments, and the shipper’s needs are almost always met at the price promised at the start of the year. As economic activity increases in EU countries, capacity is likely to tighten. Shippers should be prepared to adjust their strategy if this occurs and prices increase in the market.
- Truckload procurement plans are tested as supply and demand fluctuate during peak seasons.
Both markets experience periodic surges in freight demand that cause ebbs and flows in the amount of available equipment—and the cost of that equipment.
In Europe, strikes and the migrant crisis, among other situations, have caused temporary truckload shortages. While strikes are not extremely common, they can be impactful, making it more difficult for carriers to participate in the EU transportation market.
There are also more predictable seasons, such as national and festive holidays in each region, that can cause capacity shortages and higher truckload rates. Generally, seasonal disruptions for holidays impact the EU truckload market for a longer time than the U.S. market.
In addition, equipment limitations can cause capacity shortages in Europe that do not occur in the U.S. For example, in Europe, soft sided curtainside trailers do not allow for minimal protection. As winter takes hold, refrigerated trailers are required to protect products from freezing, causing refrigerated capacity shortages.
There are factors that interact uniquely in each market. Transportation buyers should use the market intelligence available to them to develop the most effective truckload procurement strategy for each region they serve.
How a global TMS plus managed services can help with cross-region transportation procurement
The factors discussed in this post only begin to suggest the level of complexity involved when you are managing transportation procurement across regions. If you want to optimally manage this level of complexity, you will need a global transportation management system (TMS) that also has a physical presence in each of the regions you want to cover. There’s simply no substitute for having experienced logistics professionals in each region who are intimately familiar with the technology and the nuances of each territory.
Get the complete picture of what we’ve learned in our research by reading Improving Your EU and U.S. Truckload Procurement. Part 1 offers 7 insights on carriers and drivers; Part 2 has 6 insights on route guides and peak seasons.