Full truckload freight contracts ensure the capacity you need, while the spot market can deliver lower costs. Here’s how to use both to your advantage.
The disruption of the supply chain in the last few years has taught shippers two lessons: The best way to ensure you have the truckload shipping capacity you need is to have it under contract. And, the lowest rates can often be found on the spot market.
Of course, shippers want both capacity and the lowest available cost. But the last few years have taught carriers some lessons, too.
Full truckload freight carriers don’t necessarily want to get locked into contracts and then find their own costs have exploded. And, if capacity is tight, they can charge a premium on the spot market and only take the most profitable loads.
This “win/lose” dynamic might serve one party or the other in the short term. But truckload shipping capacity and costs move in cycles. Sometimes the cycles are long. Other times—like recently—the cycles are short, fast and extreme. But the best way to optimize capacity and costs is to manage carrier relationships with a “win/win” mindset.
To assure a sound base for negotiations, you need transparency. This doesn’t mean shippers and carriers open their books to one another. But sharing credible industry and market data is a great way to level-set a shared view of the underlying cost inputs and performance expectations. When your carriers become partners, it is much easier (and more cost-effective) to deal with the ups and downs of the market together.
Shippers will enjoy an advantage in any case if they are capturing and analyzing their own data. By understanding the patterns and limits of their truckload shipping operations, they can identify the soft spots relative to the market. This can include dimensions like spot and contract benchmarks per lane, or their own internal budget benchmarks and profitability by load type, lane or even SKU.
There might be opportunities for economies to certain destinations, consignees or by season. It might be the historically most hard-to-serve customer needs contracted coverage. This will point toward the most suitable carrier for a shipper’s specific requirements. The better the carrier fit, the better the rates and terms.
With this knowledge, shippers can negotiate the critical portion of their freight at the best rates and lock that into contracts. They don’t need to overpay for safety’s sake.
The spot market will always be there to ensure some capacity and opportunities for lower rates. For this reason, some shippers treat it as the place for “low rates at any cost.” But the spot market is naturally more uncertain; rates can move in either direction.
A better strategy is to leverage your company’s internal data to also manage spot market usage. In combination with a network resource for constant visibility into spot rates, shippers can gain a 360° view of their cost efficiency. This lets you manage spot market utilization as a planned expense rather than a fallback measure or, worse, a roll of the dice.
You can budget for it. You can build a schedule around it. And, because you have handled your core freight with contracts, you can focus rate shopping on the freight with the most variable requirements or the most consistently low rates.
By strategically managing a combination of freight contracts and the spot market, shippers are in a better position to deal with the next wave of the supply chain cycle, up or down.
