Will my core carrier strategy continue to meet my needs and handle my growth?
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 proposes that we no longer live in an era of continuous improvement with transportation becoming slower, more fragile and less reliable. Rule change #2 proposes that it’s no longer all about volume but that it’s all about profitability. Rule change #3 proposes that it’s no longer about reducing spend but it’s about assuring capacity when bidding out freight.
The Fourth Rule Change
Old – My core carrier strategy will meet my needs and handle my growth.
New – I need to think about both my “good” freight and my “bad” freight differently.
Shippers have “good” freight, which is a load that moves efficiently with regular, predictable patterns and backhauls and “bad” freight, which is suboptimal; it fluctuates in size and volume and can be unpredictable. According to Perry, “In a perfect market, the two kinds of freight move at different prices.”
Customers are Segmenting their Freight Into Two Buckets
With tight capacity, shippers are finding it harder to move their suboptimal freight. Under the “old rules” shippers would contract with a carrier to handle both good and bad freight. Since the shipper paid above-market rates for good freight, the bad freight went for below-market prices, evening out transportation spend. But due to tight capacity, carriers now only want to focus on good freight, leaving a critical shortage in bad freight capacity.
This has caused prices to rise and as this continues, margins will improve as “bad” freight becomes “good” freight because carriers can make more money delivering it. Shippers need to identify their bad freight and its value, understand what is at risk if the freight doesn’t move and how much they are willing to spend to solve the problem.
Understand that “one size fits all” contracts have disappeared
By sharing information with carriers, your business will enjoy optimal services and pricing to get your freight to the right place at the right time. Connect carriers to a B2B network to automate their processes and improve communication with them. Share forecasts of projected shipments so carriers can be better prepared.
The fifth rule change - next in this blog series - focuses on the question "is the freight transport market mature and slowly evolving or will technology will topple the status quo?”