Series: Five Old Rules of Transportation That No Longer Apply - Rule #3

January 20, 2016 Ed Rusch

Is Reducing Spend the Prime Goal when Bidding out Freight?

Noël Perry, Founder and Principal of Transportation Economics gave a keynote presentation recently at the IGNITE Supply Chain Conference in Philadelphia. His presentation, “Transportation: A Year on the Edge,” focused on the underlying fundamentals of transport demand, operations and competition. In short, Noël listed five old rules of transportation that no longer apply while offering up the new rules replacing them. Supply chains will be dramatically impacted.

This blog series covers each rule change individually and offers up strategies to navigate a successful transition. Be sure to subscribe on the blog stream to receive real-time notifications of each new post.

Discussed in previous posts, rule change #1 proposed that we no longer live in an era of continuous improvement with transportation becoming slower, more fragile and less reliable. Rule change #2 proposed that it’s no longer all about volume but that it’s all about profitability.

The Third Rule Change

Old – When bidding out freight, reducing spend is the primary goal.

New – When bidding out freight, assuring capacity is the primary goal.

Today, truck load prices are moving above inflation; spot load prices are even worse. Gone are the days when you could easily secure a significant discount from your carriers.

After Decades Moving Below Inflation Prices Now Moving Firmly Above

Because of the driver shortage and upcoming regulations, there is a major shortage of capacity in the transportation industry. For success, shippers have to work closely with their carriers and help them become more efficient – like giving them; connectivity to automate processes, resources to communicate and collaborate more effectively, and more.

The industry is also facing a plethora of new regulations – a record number (22) will hit between 2017 and 2019. These regulations include e-logging devices; trucks can’t drive above 68 MPH; etc.

With e-logging and GPS devices, companies know more about the hours of availability and location for each truck. Previously some trucking companies padded each load assignment by 6 hours. With tracking devices installed they now only pad assignments by 2 hours, allowing them to better utilize assets.

Facing a Major Pricing Exposure

Supply chains face a major pricing exposure in 2017, which will peak in 2018 or 2019. With a surge for capacity occurring between March and July (not fall anymore), capacity is predicted to be 108%.

The fourth rule change - next in this blog series - focuses on the question "will my core carrier strategy continue to meet my needs and handle my growth?"

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