Contracts are not just formal documents lawyers write up – BY Mike McCarron
I’m continually puzzled by our industry’s approach to contracts. Few carriers feel the need to have contracts with customers, and many flat-out refuse to see the value in them. We have no problem spending millions of dollars in equipment so a customer can “try us out.” If he doesn’t like us, we expect him to cordially return the iron so it can rot against the fence until sales can find some other “tryout” customer.
I was never a big proponent of contracts myself. I was schooled that if you needed fine print to help manage the relationship, you’re toast. I got my wakeup call when I was approached to sell our business. I saw how valuable those signed con-tracts can be to a potential buyer. This isn’t the only reason to have contracts.
Here’s why I believe every transportation deal should be anchored in writing:
Do we have a deal?
By far, the worst deals I’ve made are the ones done with friends. You spend five minutes talking about business and 55 minutes laughing about your days playing junior hockey together. Once the skids start to move, you quickly realize the consequences of not ironing out the details. Contracts force you to have hard conversations early in the process. They formalize terms you can come back to if the relationship starts to unravel, improving your chances of doing quality, long-term business together. Short-term relationships suck.
Be a Fortune Teller
Contracts are no fun to negotiate. They require lots of give-and-take in order to find common ground. I think this is a good thing. Is there a better crystal ball for you to gaze into and see what it would be like to work with a particular company? A contract negotiation can give you a glimpse of your future together.
Take it Upstairs
Just like you, very few transportation decision-makers have the authority to sign a contract on behalf of their company. Most deals need to go up to the corner office in order to be executed. Getting into the C-suite can raise your profile within your customer’s organization. If things go south, customers will work a little harder to protect the status quo before admitting that you were a big mistake. A contract can also provide insurance should “your” guy move on to greener pastures.
In my sales heyday, without contracts rates would last for-ever. It was more common than you think. According to a 2011 study by Simon-Kucher & Partners, only 57 of logistics companies even attempted to increase their prices. Contracts and contract negotiations serve as a reminder to customers that a rate review is on the agenda. Contract anniversary dates also put a stop to “Ho-Ho Syndrome.” That’s the act of meeting customers in December to wish them a Merry Christmas and to ask for a rate increase starting on January l.
Turn to Green
If you still feel no incentive to lock in customers, consider what will happen when it’s time to sell your hot dog cart. Contracts give suitors a sense of security that the business is not all about you. If you think they aren’t worth the paper they’re written on, wait until you try to sell the business.
Ironically, you should have contracts with customers for the reason they should have one with you: Contracts are a foundation for a profitable, long-term relationship. I’m not saying you should immediately go ask current customers to sign on the dotted line. That will only raise a red flag. I am suggesting, however, that you show up for another “tryout” only after a deal is inked.Mike McCarron was one of the founding “M”s in MSM Transportation before the company was purchased by the Wheels Group. Based in Toronto, he currently works for Wheels in mergers and acquisitions and can be reached at firstname.lastname@example.org. Follow Mike on Twitter @AceMcC.