The running joke in IT is that COVID-19 drove digital transformation forward five years in less than five months. It has done the same for the truckload trucking industry. Several years’ worth of market cycles have occurred since March 2020 — peaks and valleys of demand that were unevenly distributed across industries, companies, and lanes. While there is always some level of variability in volume and rates, they have never been as unbalanced as in this current period.
The silver lining, however, seems to be a growing consensus amongst shippers, carriers, and 3PLs that transportation procurement needs to evolve. Holding annual reverse auctions for contract rates that are then fed into static routing guides, while acceptable during stable time periods, has failed during the volatility of the pandemic. In a fast-changing environment, shippers need to include more dynamic procurement methods in their transportation portfolios. Shorter contracting periods, index-based contracts, tiered based pricing, and other innovative contractual forms need to be added to a shipper’s portfolio, which should already include dedicated and spot.
The rate of change and disruption does not look to be slowing down in 2021. Therefore, shippers need to adopt these more dynamic procurement methods and incorporate better visibility into how their networks are performing. All lanes are not the same and should not be procured or managed the same. Shippers must be able to analyze and segment their networks according to their own characteristics. For example, volume consistency and cadence on a lane have more of an impact on carrier pricing and behavior than does the total volume. Only if shippers have the ability to identify, monitor, and analyze networks can they effectively manage their transportation portfolios during volatile times — such as we are seeing now and expect to see going forward into 2021.