Many agent deals are founded on the notion of ‘reciprocity’. But, asks FIDI Secretary General Jesse van Sas, what exactly is it – and does it still make sense?
Reciprocity is still one of the main subjects when movers meet at a conference. How many pounds (lbs) did I send you last year, and how much have you sent back to me That comparison either makes you confident before the meeting (I outbooked my opponent) or makes you drag your feet on the way (they outbooked me!).
The principle of reciprocity is simple: when I give you my booked moves (expressed in lbs or tonnage) for origin or destination services, you return the favour, and send me your booked moves for the same. This is how we keep each other busy and build loyalty in our business relationship. Originally, reciprocity was only based on account loyalty, but it has now extended across the moving business.
The initial, simple idea has grown into something much more complex. Different markets vary widely. Some have many more inbound than outbound moves, or vice versa. Some tend to be far more active in move management, sucking the business towards them, leaving little or none for the countries from where the moves originate. Some businesses operate worldwide, out of multiple offices, while others only work from one country. All of this creates an imbalance in trade. The one-pound-for-one-pound reciprocity rule is not always workable in reality.
The principle is still there, however, and has taken on a life of its own over the years. I remember agent deals that even had penalties included. If you could not meet what your company had committed to at the beginning of the year, you could be faced with a sizeable penalty invoice from your partner agent at the end of the year. Not an ideal scenario for a lasting partnership, and one that would certainly make the subsequent meeting a bit tense.
Reciprocity is a good thing. It creates business loyalty, a better working relationship between agent partners, security for the customers, and some predictability for expected revenue in the years ahead. It no doubt adds value to the base business transaction of consigning a shipment to an overseas agent. So it still makes sense to monitor it and ensure that, for all the free-hand tonnage you book with your overseas agents, there is something coming back to you. But it cannot be a rigid basis of your business, because of the above imbalances in trade. It just does not work in an industry with huge bookers, move management firms and RMCs absorbing the lion’s share of the business, and, at the same time, expecting the lowest possible rates.
On top of this, large bookers may have agreed extra-long payment terms with their corporate accounts, expecting – sometimes even enforcing – their agent-supplier to apply the same payment terms. If this is communicated up front, it is the agent who must make up their mind whether to accept that business, or not.
Finally, reciprocity cannot replace settlement of your invoices – but some entrepreneurs in our industry are making this into their ‘thing’ nowadays. They will not pay you for your services, as they want you to reciprocate by sending them business to offset what they are due. This is a bad idea, because it jeopardises the basic principle of doing business: you provide a service, raise an invoice, and get paid for it, preferably on time, with money in your bank account. Accepting payment of your invoice through reciprocating the business is a dangerous pathway to imbalances and longer payment delays. It can happen occasionally, of course, but should not be the basis of your trade with overseas agents.
Among the biggest challenges in this industry are thinning margins and the extraneous payment delays of powerful corporate customers. This puts stress on the cash flow of the service providers.
Correct and timely payment of the invoice is vital for business continuity. Let’s not muddy the waters with uncertain commitments of reciprocal business to cover the payment of the trade invoice.