Over the past few months spot rates have been declining; putting pressure on shipper and carrier relationships. Here are three strategies that can help shippers make the most of the current state of the market without acting too impulsively and making unwise decisions that affect the long term.
As spot rates continue to fall, the power of the market has shifted over to the shippers. While many shippers may be in a hurry to take advantage of low spot rates, it is important to remain conscious of relationships with carrier partners when deciding to move from contract to spot.
As we have seen over the past couple of years, the market can change at any time. During this period, many shippers became carried away on capitalizing on low spot rates without considering the risks/reward of doing so. As a result, these shippers can diminish their current relationships with carriers, negatively impacting costs in the long run. A healthy relationship with your current partners will help mitigate the many unknown risks of this volatile industry. These relationships also avoid the headaches of working with carriers unfamiliar with your routes, leading to late fees and chargebacks. So, it is important that a shipper doesn’t let the power of the current market influence impulse decisions, as a sudden shift in the spot market could be right around the corner.
Strong relationships between shippers and carriers begin with RFPs. Shippers can utilize RFPs to work with carriers in an efficient and timely manner while building upon established relationships and widening their carrier base. The bonds between carriers and shippers are extremely fragile but also extremely valuable. The spot market ignores these ideals, and often both parties take advantage of each other with the current market power. With shippers currently having market power, shippers can tap into RFPs in order to stabilize relationships between shippers and carriers. RFPs are the future of shipper and carrier relationships.
As empirical evidence shows, spot rates are subject to change. Being innovative through data-driven decision-making is crucial to staying one step ahead of the market. The spot market empowers either the shipper or the carrier, so it is essential to understand the market trends and the effects these trends can have.
Contractual freight is less volatile and supports long-term goals and connections between parties. For this reason, It is very smart for a shipper to run contract freight for the majority of their loads and refer to the spot market when shipping their tail freight. Another strategy is to regulate the amount of freight you administer to contract carriers and direct the remaining freight towards mini bids for cost savings.
By widening one's carrier base, running mini bids and moving tail freight through the spot market become two very feasible options for shippers. Mini bids also give you more options in contract length in order for a shipper to combat volatile rates and leverage risk. In regards to all these strategies, a Freight Procurement Platform can help navigate the spot and contractual market to help make data-driven decisions.
The spot market is a great option for shippers in the current socio-economic climate, but caution must be taken in the decision-making process. Having a technology to create a partnership that is built upon trust provides both parties with stability when the market fluctuates and risks arise. RFPs and contractual freight both provide long-term relationships that shippers and carriers can build on, and are certainly beneficial in terms of integration.
Emerge is pleased to support the next generation of supply chain professionals. This blog was written by Matthew Schulz (University of Georgia) and Michael Dowling (Arizona State University)