By Olga Rissin | Product Manager, FMIC Europe & Russia | Chainalytics
Regardless of operational size or geographic scope, most shippers around the world are grappling with how to ensure they’re procuring the best freight rates, in all given markets, while maintaining current levels of service, from a network of core hauliers, efficiently.
Naturally, transportation procurement teams choose to answer this complex logistics question in a variety of ways. Many choose to use a “bidding process” involving their core hauliers, with mixed results. Some simply want to make sure they don’t exceed their annual transportation procurement budgets. Most invest in some degree of research and freight market monitoring to navigate this space with more confidence. Others subscribe to and learn from published research, then work with their core hauliers to strategically adjust their freight rates with the ebb and flow of economic swings. And even more, many others involve external transportation consultants and benchmarking providers to support them in conducting and interpreting market analyses.
The question then becomes, how much is too much?
At the end of the day, many shippers are still left pondering these same questions:
- How can I continuously secure the best freight rates and service levels from my hauliers?
- How can I be confident in knowing that I’m not leaving money on the table when procuring freight rates?
- How do I choose the best mix of transportation procurement approaches to meet my unique business requirements today and in the future?
In this complex, fragmented freight market with constantly changing regulations, it’s important to pick an optimal mix of transportation procurement approaches to ensure your company is securing optimal freight rates and services efficiently.
Assessing Your Transportation Procurement Options
Shippers consistently take similar approaches to try and solve their transportation procurement puzzle. Each transportation procurement approach has it’s own benefits and drawbacks:
- Most shippers today employ dedicated transportation analysts to review historical performance, forecast and budget and provide some idea of their transportation demand and supply trends and costs. This analysis can often get delayed for weeks or even months depending on the number of available resources and bandwidth.
- The downside to this approach is that it does not provide a holistic view of the freight market in a broader context.
Conducting a Transportation Bid
- No matter how well you plan, preparing for a bid can take a lion’s share of your transportation and/or procurement department’s time and resources. While you will get a good market reality check, as hauliers respond with information that is tailor-made to meet your business needs, these bid-specific freight rates and capacity estimates represent only a cross-section of all available freight rates and only reflect your supply chain network’s volumes and needs at that point in time. In other words, bidding does not guarantee you’ll secure the best possible freight rates, secure adequate service levels or help you adapt to changes in your network or requirements over time.
- Don’t get me wrong: Annual transportation bids are a good thing. But, what if you could go out to bid when the market is soft? While you may be able to save some time and stress associated with regular bidding, not to mention taking advantage of market opportunities, this approach requires that you actually know when the market is soft and/or will soften. Not so sure of your crystal-ball reading capabilities? Then the real question to ask yourself in regards to bidding is, How can I not only be reactive, but proactive and prepare for changes early enough to reduce bid-related costs and extract maximum value for my operations?
Utilising Research and Consulting Services to Gain a Holistic Perspective
- While using external, analytical services may help you augment or bypass internal analysts’ capabilities, this transportation procurement approach may or may not give you access to more information beyond your own company history. Many agencies and companies provide access to bidding databases and “average market rates.” But ongoing use of these services can be expensive, especially if you want to maintain the effect over time: the answers you get today may be less relevant tomorrow or in three years from now, so you may be looking at a series of expensive ongoing engagements. Likewise, you have no way of knowing whether these services are providing valid rate estimates for your specific needs that are 100 percent applicable to your operations, or whether their analytical methodology when applied actually makes sense and leads to specific and actionable insights.
- This whitepaper from Dr. Chris Caplice of MIT, “The Myth of a Single Market Rate” can help you tackle the question of your external transportation benchmarking provider’s competence.
We at Chainalytics find that a hybrid approach – one that combines analysing your own service requirements and haulier performance with a broader freight market view by using credible, competitive business intelligence tools – helps most companies to thrive, over time.
Chainalytics’ Freight Market Intelligence Consortium (FMIC) offers an external benchmarking based on regular and timely econometric modeling of transactional freight rates markets and their underlying components to reveal the true cost drivers that actually influence haulier rates. Our sophisticated global transportation benchmarking services are available to transportation teams across many international markets, as well as in the United States.
Today, in the 21st century, transportation procurement teams are not answering only simple questions like how to get from A to B; Instead, they are solving complex business problems everyday with the right mix of transportation procurement approaches for their business needs.