If transportation were a commodity, shippers would shop for carriers online by viewing their ratings, reviews, and procuring freight contracts with a simple price-per-volume calculator.
But transportation does not behave like a commodity. The freight market is dynamic and always in flux. Carriers price each lane differently, and shippers consider more than price when selecting carriers. The size, technological capabilities, lane preferences, on-time service, safety records, insurance coverages and other characteristics of carriers all make a difference.
With so many options, how do shippers choose the right carriers? The best place to start is to use objective data to benchmark carrier performance across the network and at the lane level to other carriers and the overall freight market.
Monitoring vital signs
Analyzing and segmenting carriers by price and other characteristics is a centerpiece of the annual RFP process and continuous procurement activities like mini-bids. This is a natural opportunity for shippers to review the relationships they have with incumbents and identify lanes where it makes sense to add new carriers or replace incumbents.
The annual RFP typically focuses on lanes that have a fair amount of volume but lack the consistency and balance that would make them better suited for dedicated or private fleet operations.
When awarding freight contracts, contract prices are binding but the shipper’s volume commitments are not. This means carriers can reject load tenders if they do not have capacity when a shipper needs it. It also means that carriers might decide to reallocate capacity for premium spot market opportunities.
Shippers track load acceptance rates for contracted lanes to assess the health of their carrier relationships, not to impose a direct financial penalty. However, the data is an important measure for assessing carrier performance during the next RFP.
Analyzing carrier performance
From year to year, incumbent carriers move between 60 and 80 percent of a shipper’s loads. The remaining 20 to 40 percent are moved by new carriers that shippers add through RFPs or by spot market carriers when contract loads fall through a routing guide.
Shippers prefer to stick with incumbents even if their rates are not the lowest. If carriers have a good record of load tender acceptance and service levels, that track record should continue when they submit contract rates based on first-hand knowledge and experience.
When assessing the performance of incumbent carriers, shippers can use trusted data sources and freight intelligence to compare rates of carriers that service the lane with market rates. Cost performance can be contextualized by bringing carrier service levels and historical tender rejections into the analysis.
One of the objectives during procurement events is to determine “lane robustness,” or how many carriers are needed to keep the resulting routing guide intact for each lane. Sorting and benchmarking carriers according to how their rates compare to market rates is a key part of this analysis.
You can also find which carriers are getting paid the most above market and find instances where you are paying above-market rates but not getting expected service levels. In other cases, the analysis may help justify paying above market rates. Lanes aligned with higher customer service level requirements or insurance coverage requirements, for instance, may cost more than market averages to secure carriers with the right characteristics.
If your rates are below benchmarks and you’re facing constant delivery issues, you may be able to attain higher service levels by making upward rate adjustments to align with the market (or replacing these carriers with new sources of capacity). You might also find you already have leverage with carriers to request improved on-time service in return for paying the higher rates.
These and other analyses can provide insights to help strengthen carrier relationships and assist with negotiations during the annual RFP and during tight market conditions to resolve problem areas.
Expanding carrier relationships
Shippers want to avoid spot market exposure from having contracted loads slip through routing guides. To fortify routing guides or repair leaks, shippers can use rate analytics and transportation carrier lists. These tools allow shippers to search for new carriers and help with conducting off-cycle RFPs (or “mini-bids”) to help broaden their carrier portfolios, and to reset carrier partnerships and potentially improve rates.
Off-cycle procurement events can be planned months in advance or conducted on an ad hoc basis. Some shippers may schedule RFPs on a biennial cycle to modify their procurement strategies in lanes where they are going over budget. Others may do quarterly or monthly RFPs by targeting specific lanes and carriers that are not meeting cost and service expectations.
Transportation procurement has become more of a continuous process, especially during supply chain disruptions. Accurate, timely, and relevant transportation analytics on rates, capacity, and performance can drastically improve your carrier analysis and segmentation efforts, to balance rates and service levels in your network.
Contact the transportation experts at DAT today to learn more about how shippers can use transportation data and rate analytics to analyze carrier performance during annual RFPs and throughout the year. www.dat.com/shipperiq