A recent post on Brown’s Compass Online website from Brad Mitchell, the UPS president of distribution and logistics, proclaims Vested Outsourcing is one of the Top 5 trends in logistics.  Mitchell sings the vested song, to wit: “The key is collaboration. It’s crucial that companies and their vendors, suppliers, and service providers work closely to establish appropriate goals based on business objectives and then create realistic and measurable supply chain outcomes that will advance mutual goals.”

That of course is right out of Vested Outsourcing’s Rule 3: Agree on Clearly Defined and Measurable Outcomes. The vested relationship functions best in a culture where the participants work with each other to ensure their mutual success – the idea is to buy desired outcomes, not individual transactions.

The other supply chain trends cited by Mitchell include, in brief: A focus on security; getting serious about sustainability and going green; outsourcing as a supply chain strategy and a way to free up working capital while focusing on core capabilities; and the continuation of “doing more with less” as the new normal, meaning flexible supply chains, more facility sharing and adoption of multimodal transport strategies.

Jim Barnes, president and CEO of enVista, an enterprise cost management services provider that does supply chain, transportation, ERP and CRM consulting, extols the “power of vested partnerships” recently in his blog.   In it he writes that a colleague gave him the book to read.  “I fully support her message and the book’s overall premise. Vested Outsourcing explores the concept of moving beyond what I refer to as ‘Type I partnerships’ whereby a contract between a supplier and customer is based squarely on price and activity. Vitasek rightly stresses the value and importan(ce) of moving instead to “Vested Outsourcing.”

His post continues at length, but he also suggests that “Vested Partnership” is a “better term than Outsourcing for several reasons … primarily because the end goal in any business partner relationship is to create a partnership based upon transparency, collaboration and improved cost containment or reduction whereby all parties have a ‘vested’ interest in the outcome.” I’m not exactly sure why that term is better, or whether he thinks I should change it (yeah right!) but he concludes his post saying: “I want to thank Kate Vitasek for inspiring me. Her book has validated the importance of Vested Partnerships, the same type of partnership enVista has been consulting on and putting into practice with its own clients for the last eight years.”

So maybe that explains where he’s coming from. I’ll stick with Vested Outsourcing for obvious reasons and because an outsource relationship is something that’s a little different than a corporate partnership. Legal expert George Kimball (author of Outsource Agreements: A Practical Guide) argues the term Partner connotes a legal entity. Kimball’s book because is an excellent guide to the legal and practical issues that can arise from complex outsourcing deals. While I agree in spirit with Jim – I’ll stick to Vested Outsourcing for now!

Let the vested inspiration flow. To paraphrase Sally Field’s famous comment after winning the Oscar: You like Vested Outsourcing! You really like it!

It’s been a gratifying and rewarding experience, but the most satisfaction really comes from the growing acceptance and implementation of vested principles into actual business practices, and when the theories and ideas of Vested Outsourcing are put into play.

The rubber does appear to meeting the road. Literally, in the case of the less-than-truckload (LTL) transportation segment.

Meet Hank Mullen, president of The Visibility Group of Alpharetta, GA. His company acts as a go-between for shippers and carriers to provide “user-friendly, efficient transportation industry pricing tools” designed to reduce costs, increase profits and improve visibility.

The Visibility Group’s staff has more than 105 years of cumulative experience in the transportation industry, including expertise in freight classifications and sunsetted Interstate Commerce Commission, National Motor Freight Traffic Association, National Classification Committee (now CCSB), National Motor Freight Classification, Department of Transportation and Surface Transportation Board regulations.

The group has 28 years’ experience working for major LTL and small package carriers and smaller regional carriers.

So when Mullen becomes a proponent of Vested Outsourcing as a way to bring rationality to transportation outsourcing, it’s very much time for the industry to take notice.

In a February Logistics Management article on negotiating LTL costs, Mullen wrote about “five golden rules designed to reduce costs for LTL shippers and carriers.” Yes, you guessed it; those five rules are (ahem) none other than Vested Outsourcing’s Five Rules to transform outsourcing!

Mullen wrote that improving service and reducing costs for the shipper and the LTL carrier is the “Holy Grail for logistics and transportation professionals.”

But how do you resolve those seemingly opposing objectives? “We thought of proposing a method founded on space occupied, or a process-based concept that has dimensional shipment size as the basic measurement to determine rates and charges,” he said. In other words, pay for what is used based on the truck space occupied.

Later he came across our research work on contracting logistics and transportation at the University of Tennessee on behalf of the U.S. Air Force. Specifically he came across the Five Rules; he agreed that they make “good sense” for LTL shippers and carriers.

“By ‘vesting,’ the shipper and carrier match supply chain networks, but also mesh business processes right down to choosing insurance, fuel options, shipping schedules, and weight/cube impact of the product,” Mullen says. “The goal is to reduce the carrier risk in dealing with the shipper and reduce costs by aligning processes to optimize freight cost and service in a tough business environment.”

Talking about Rule 1 – Focus on the “What,” not the “How” – Mullen wrote that he learned recently of a partnership between a shipper and a carrier over date and time of shipments “that resulted in fuller trucks making fewer pickups. The benefit was a shared cost reduction of 12 percent – split by both partners.”

That sure sounds like a win-win. While I don’t claim that Vested Outsourcing guarantees you’ll reach the Holy Grail of reduced costs and better transportation service – remember the real Holy Grail of Arthurian legend was never found – it can certainly be the road-map that helps you navigate around the pitfalls and the dysfunction in shipper and carrier relations that’s all too common.

In the world of transportation logistics, supply chains and shipper-carrier relationships it’s a long-running story of irrational and often toxic rate and service level relationships. Carriers and shippers are prime exemplars of Vested Outsourcing’s 10 Ailments.

It should be different: Shippers and freight forwarders depend on ocean carriers to get goods to market, and carriers need shippers to fill containers and cargo holds with merchandise. Since they need each other to prosper one would think it would be in their best interests to cooperate more fully and even trust each other, at least a little bit.

But unless you’re a Wal-Mart or a Target and can negotiate with carrier consortia on an equal footing that almost never happens. Trust? Don’t be silly!

For a look at how not to do it, look no further than to the dysfunction of trade and logistics on Asia-Pacific trade lanes. Trans-Pacific liner operators lost at least $15 billion last year, and 2008 wasn’t very good either as trade and financial markets headed south. Some damage was self-inflicted: They desperately scrambled to preserve market share by slashing rates while an influx of huge new containerships they purchased, perhaps unwisely, during the boom times of the economic bubble entered their fleets. Of course when the Great Recession hit, these carriers found themselves high and dry – chasing too little cargo with too much available capacity at non-compensatory rates.

Today the carriers, desperate to recoup those losses as quickly as possible, have embarked on a highly muscular, unilateral strategy: Raise rates dramatically, cut vessel capacity sharply and also steam across the ocean at much slower speeds to save on fuel consumption (which cuts available capacity even further). Shippers and freight forwarders, especially in the small-to-medium size range, are in effect being held hostage by the carriers: They must pay more for less space and poorer, i.e. slower, service.

This kind of behavior is typical of the way ocean carriers and shippers operate, with or without contracts in place. It’s a long-standing tradition. Some years the carriers have the power, at other times the shippers do – a ping-pong match of who can outsmart and whipsaw the other player.

They demonstrate textbook examples of What’s in it for Me thinking, instead of What’s in it for We by focusing on immediate returns, on the what not the how, based on who has the upper hand at any given moment. Old hands in this industry merely shake their heads, smile knowingly and comment that it’s just the “boom and bust” nature of shipping and trade.

I believe there’s a better, and as Dr. Oliver Williamson might say, a more rational way. Collaborate on mutually beneficial rate and service outcomes; move from the cutthroat me-first “win” mentality to the “win-win” by vesting in each other’s success through earned trust and loyalty with credible, vested rate and service contracts.

There are some who see the light, or at least talk that way. Jean Louis Cambon, who recently took over as chairman of the European Shippers’ Council Maritime Transport Council, said recently: “Carriers must understand that by restraining capacity below trade demand and creating cargo roll-overs, they will encourage the increasing number of shippers who want to shorten their supply-chains to shift sourcing of their products to origins closer to consumption markets, which eventually will reduce the ton/miles transported and the fleet necessary to carry them.”

In other words the carriers are cutting their own throats, as usual, for the quick buck. Cambon talks further about the serious impact of the carriers’ unilateral actions on supply chains, including longer lead-times and higher inventory costs.

“It is time move beyond the old cycle of boom and bust, rate volatility and instability in the liner shipping market; we all have a vested interest in the long term stability of the liner shipping sector; equally the liner shipping sector has a vested interest in the sustainable economic growth of their customers.”

Just words? Are carriers listening? They could start by studying Vested Outsourcing; it’s time for a new tradition.