The trucking market has been whipsawed by the volatile early months of the pandemic and an extended period of overcapacity, high operating costs and shifting demand. For nearly two years, shippers have been able to exert their pricing power and rein in costs. Looking ahead to 2024, it’s time to get the proverbial house in order. As the saying goes, fix your roof before it starts raining.
This means establishing a complete transportation procurement portfolio of dedicated contract and dynamic relationships. Most shippers establish contract rates on lanes using an annual RFP that feeds into a waterfall routing guide within their transportation management system. But contract relations are rarely sufficient by themselves. Don’t overlook the other two relationships: dedicated and dynamic.
Dedicated or private fleets are best suited to high-volume, balanced and generally shorter lanes where the assets can be utilized with minimal empty miles or hours. Simulation analysis can identify appropriate sets of lanes for dedicated operations.
Dynamic relationships work best on unpredictable and very low-volume lanes, which aren’t amenable to traditional contracting. Even if a contract rate is secured, these lanes typically fall through the routing guide and end up in the open spot market. Shippers should establish relationships with a few providers where capacity is guaranteed but at a rate that reflects the market at the time of tender. Real-time market indices, pricing algorithms and API connections make dynamic relations possible.
Applying a rigorous segmentation analysis is a significant first step toward a transportation procurement portfolio with a proper balance of dedicated, contract and dynamic relationships. Put these mechanisms in place now, while the sun is out. You’ll be able to secure the right capacity on the right lanes at the right price when the winds inevitably change.