As the tides rise and fall, so too does the transportation market. The difference, though, is that the latter doesn’t adhere to a schedule, making it anyone’s guess when and how things will change.
Currently, it’s a shipper’s market. The quantity of freight in circulation is low, providing shippers with leverage. Transport companies are dropping rates to attract business. Inevitably, we expect that smaller carriers will struggle to compete and will begin leaving the marketplace.
Many of these small carriers arrived when interest rates were low, enabling them to buy equipment with minimal interest on payments. As it becomes more challenging to make those payments in a crowded market, they will get squeezed out, reducing carrier optionality. The market will flip, introducing new challenges in transportation management procurement, rising rates being just one of them. But if you do the proper legwork when the tide is high, the shift won’t be nearly as disruptive.
Relationships as an Anchor
There is perhaps no greater anchor in transportation management procurement than relationships. Transportation management is indeed a business, and all parties need to be profitable, but predatory practices offer little long-term benefit. When carriers are competing for your business, it’s certainly acceptable to use that leverage to get a good deal, but within reason. Tightening the screws on potential partners can sour the relationship, making them unlikely to lend a hand when the tide turns.
Even being complacent and simply taking the cheapest option creates no future upside. Strategy and process break down, so when the market changes, those shippers are left adrift. Engagement and relationships are critical, especially given the cyclical nature of the industry.
So how do you establish those relationships when they’re competing for your business? Share the wealth. Give freight to as many carriers as possible in a productive way. Inevitably, some carriers aren’t going to get freight, especially when there are five carriers on one route. There is benefit in selecting one that might not be the lowest priced but has capacity, and you might find yourself in a better position when the odds aren’t in your favor.
The same strategy should be applied from a brokerage market perspective. Maintain broker relationships and be intentional about which brokers are in your network, just like any other carrier vendor.
Ultimately, striving for a win-win-win scenario in all market conditions will keep you steady in uncharted waters.
Stay Ahead of the Curve
It’s the job of transportation procurement to source the best service and value for customers, which requires constant evaluation of the network. We examine full truckload, less-than-truckload and parcel, and evaluate carrier contracts every 12-18 months. This timeframe is typically sufficient to ensure that clients are getting the best deal, but too often, people get lazy. Operating without strategy, and instead allowing the market to simply happen, leaves you ill-prepared for the future. Similarly, getting greedy in a favorable market is unwise. Certainly, some situations warrant a more frequent review cycle to stay abreast of changes and move freight, but seeking a new contract every three months is adversarial to the relationship.
Instead, work proactively to understand your carrier’s business, needs and strategy. That allows you to be a resource for them when they need it, particularly when their services are in high demand.
Finally, it’s important to be diligent when evaluating carriers. A significant challenge in 2024 and beyond is verifying legitimacy. Fraud and theft of freight are all too common today, especially as the transport process becomes digitized. Be conscious of how you’re qualifying carriers, and utilize asset-based ones when you can. Using a broker keeps you a step removed, making it difficult to control the process utilized for onboarding the broker’s underlying carrier. Keeping the number of brokers you use manageable, and confirming that your broker’s carrier onboarding and monitoring process meets or exceeds your expectations, will go a long way to minimize your risk and surprises.
Simply recognizing that things will turn is half the battle. Have a plan in place to prepare for inevitable shifts. Customers typically build their budgets based on a low cost per mile, for example, but anticipating that they might need to navigate budget changes mitigates the impact.
Preparation is contingent upon information-sharing and constant communication. Because no one has a crystal ball, being aware of what is happening and doing our best to articulate what we think is going to happen is the best tactic.
When the shift does happen, clients who have been broker-heavy are going to be impacted more immediately, as spot rates rise faster. Contract rates will follow three to six months later.
Of course, 2024 has just begun, and the market might just surprise us, but by investing in relationships, being proactive and remaining adaptable, you can be prepared to navigate well in any condition.
Doug Frank is senior vice president of procurement with Geodis.
