By Mike Hane | Senior Director, Transportation
Driver shortages, government regulations, economic recovery. These harbingers of doom have been held over shippers’ heads for a while now. While there are real concerns about truckload capacity and infrastructure over the long term, we’ve actually seen a bit of cooling in truckload markets. Rates increased around 6 percent in 2014, but overall, very little in 2015. The recent months’ data I’ve seen is showing even more softening in the truckload market.
In talking with hundreds of shippers over the past years, we hear all the time that many companies are wary of putting out a truckload bid in a rising freight market. They don’t want to take the risk of getting hit with an increase.
So, What’s the Risk of NOT Bidding in a Rising Market?
If you decide to stick with the seemingly “low” contracted rates you negotiated with truckload carriers early in 2014 or before, you may face some unpleasant surprises in moving your freight going forward:
- When your contracted rates slip too far below the market rate, your incumbent truckload carriers are less likely to accept your load tenders.
- You might be forced to go deeper in the routing guide and tender freight to a higher cost carrier or use a higher cost back-up pricing matrix to actually move your loads.
- Where they haven’t in the past, carriers also start asking for a deadhead mileage accessorial, to reposition their assets.
- Your carriers may begin to ask for increases individually, and you will be negotiating in a vacuum with no competitive pricing to compare their rates against.
Even if the above is not enough to convince you annual transportation bids are a good thing, the below graphic should.
If you have not done a truckload bid in the last 12-24 months, now’s probably the time to take action because truckload demand is softening and rates have recently been dropping, as the green bars indicate in the graphic above.
Chainalytics collects tens of billions of annualized freight spend dollars from 150+ leading shippers and 3PLs globally. Using data from both spot and contract markets Chainalytics utilizes proprietary econometric modeling and advanced data science techniques to actually quantify true cost drivers and develop transportation benchmarks that are often considered the gold standard across the industry.
Consider this: If you think you already have great rates, look at your tender rejects. Your best rate is not your cost on a lane. Without some outside market-wide insights, you don’t really know if your freight rate is “great.” By using an external transportation benchmark, like Chainalytics Freight Market Intelligence Consortium, you can know for sure just how good your rates actually are.
Worried That You’ll Damage Relationships with Truckload Carriers by Going Out to Bid?
No one said you have to bid your entire transportation network. Again with external market intelligence like Chainalytics’ FMIC, you can determine which lanes and carriers are in line with the market and pre-award those (extend contract terms) while bidding out lanes that are clearly no longer in line with the market.
You can run, but you can’t hide from the transportation market. . Conduct consistent transportation procurement events, lock in rates, and ensure capacity that carriers will actually honor while providing predictable transportation costs through the next year.
A Senior Director in Chainalytics’ Transportation competency, Mike Hane has worked in the transportation software and consulting services field for over 20 years, 11 of those with Chainalytics. His main focus is helping companies take costs out of transportation networks while improving customer service. He has worked on over 100 projects across many industries in North America and Europe, primarily in sourcing, fleet/mode analysis, TMS improvements and strategic network design.