The freight industry is in need of a performance measurement revolution, as we’ve covered already. Many other industries have taken similar steps with great results, including some of the most prominent in America. Performance standards adopted in finance, professional sports, and our very own transportation sector, for example, have led countless businesses to more streamlined operations and greater profitability.
Freight industry performance standards would ultimately help Logistics Service Providers (and shippers!) make better decisions for their customers, automate processes, and reduce the inherent risks of working with new carriers. But first, the industry has to catch up.
Let’s take a closer look at three examples of performance standards that can help us reshape the freight industry.
How The FICO Score Streamlined the Finance Industry
The modern financial industry has vastly improved since the modernization of credit reporting, which began in the early 19th Century. Lending practices have always existed in the banking sector, but in the past, they were incredibly subjective and personal.
A person’s character, race, social standing, and whether or not they were personally acquainted with a banker all factored into their ability to secure a loan. Lenders and banking representatives were regularly required to personally contact references to learn whether loan applicants were in good financial standing. The process was rigorous and time-intensive.
In 1970, the Federal Trade Commission (FTC) passed the Fair Credit Reporting Act. This effectively standardized both consumer data and the specific information lenders could obtain about individuals. Over time, the idea of credit reporting evolved into a standardized scoring system. What we know as the FICO score today emerged as an objective tool for loan approvals, home and vehicle purchases, and much more. This single source of truth gave banks and loan originators the information they needed, at a glance, to determine an individual’s financial standing before extending a line of credit.
FICO scores unlocked consumer purchasing power and simplified lending like never before. Lenders no longer had to painstakingly analyze a borrower’s risk profile based on subjective data points and hunches. This saved lenders time and increased the volume of credit approvals because they no longer had to consider each loan application case-by-case.
In the same way, standardizing freight industry performance standards would put more power into LSPs’ hands, streamlining the procurement process and helping them gain an edge over the competition. Just like lenders assessing borrowers’ credit histories, LSPs will be able to assess carriers’ performance histories to select the strongest candidates for each job.
How Moneyball Metrics Shook Up Major League Baseball
The “Moneyball” sabermetric strategy was made popular by the Oakland A’s as a data-driven method for hiring top players on a tight budget. Moneyball was conceptualized and executed by the A’s General Manager, Billy Beane, and Assistant General Manager Paul DePodesta, after losing three star players prior to the 2002 season. Together, Beane and DePodesta turned to some novel ways of measuring performance as they attempted to fill the open slots on a fraction of the budget of their competitors.
The strategy drives management to look deeper at advanced performance metrics as a team builds their roster. DePodesta specifically identified certain metrics that indicated a high probability of success in largely untapped but talented players. The A’s popularized new derivatives of traditional standardized performance metrics like slugging and on-base percentage, deemphasizing traditional metrics like batting average and RBIs.
By rethinking league-wide standardized performance metrics, the A’s were able to unlock a ton of value at bargain prices. DePodesta’s strategy worked spectacularly, leading the A’s to win 103 games that season despite the relatively unknown or previously discarded players on their team.
The Moneyball strategy has revolutionized scouting and roster construction in Major League Baseball, with a reliance on data and analytics as a leading proponent of a team’s roster makeup. In fact, the 2004 Boston Red Sox ended the Curse of the Bambino and won their first World Series in 86 years much to the credit of the Moneyball strategy. Nine franchises have gone on to win a World Series simply by employing the Moneyball mentality.
Without standardized performance metrics, there would be no way for visionaries like Beane and DePodesta to fuel their scouting algorithms and accurately project the performance of players on other teams. Big-market teams can no longer guarantee success by simply buying up all the high-priced talent. Instead, small-market teams are able to stay competitive by utilizing metrics, not dollars.
CSA Scoring: Standardizing Safety for the Commercial Carriers
Even in our own industry, we’ve adopted necessary standards. The Federal Motor Carrier Safety Administration’s (FMCSA) Compliance, Accountability, Safety (CSA) scoring system was developed to keep carriers and drivers safer on the roadways.
CSA was adopted to better score commercial motor vehicles (CMVs) based on their level of safety compliance. CSA adopted seven Behavior Analysis and Safety Improvement Categories (BASICs), and the CMVs without safety issues in these categories had lower crash rates.
As a result, safety standards for carriers have been more widely adopted, meaning more accountability for drivers on the road. More accountability translates to fewer crashes, fewer fatalities, and higher trust for truckers. Unsafe carriers can be taken off the road due to safety violations, and new and existing carriers must meet CSA standards to enter or remain in the industry.
The U.S. Department of Transportation began collecting data on fatal crashes via FARS in 1975, and data on crash-related injuries in 1988. Between 2006 and 2010, the FMCSA’s existing standards had already helped to decrease truck- and bus- involved fatalities by 26%, and injuries by 16% in that same time frame. And, between 2010 and 2012, there had been fewer deaths from crashes involving buses and carriers than in any other 24-month period since 1975.
LSPs Can’t Afford to Wait for Standardization
Just like CSA, FICO, and MLB, LSPs need an objective, single-source solution that takes tribal knowledge, ambiguity, and guesswork out of their decision-making processes. Digitization has already transformed the freight industry for LSPs, and has made the need for industry-wide performance standards all the more pressing. The market’s current loose capacity means performance is in the industry’s crosshairs. But without standardization in the way we all measure and optimize for performance, the industry is working with siloed and incomplete knowledge.
Many LSPs already recognize that they need to factor service-level performance KPIs into the cost of transportation, gaining a competitive edge and earning more business from happy shippers in the process. Standardizing the way they measure and report on performance allows them to contextualize their own service with the rest of the market, helping them make informed decisions quickly and efficiently.
As we move toward the future, it will become increasingly important to identify the industry’s most important performance KPIs, create a consortium, and agree on how we measure service levels. Having a neutral source of truth to measure and compare service will be paramount to this process.
Times are volatile, and the economy is unpredictable. But, LSPs can reinforce and stabilize their operations with dependable, easy-to-access information that simplifies business processes and improves the bottom line for everyone involved.
How do you measure service quality in your brokerage? Reach out and let us know on LinkedIn!