Supply Chain Strategies For Improving Freight Capacity in a Tightened Market

| By Jeff Zoroya | Director, Supply Chain Design | Chainalytics |

Most supply chain professionals are aware of tightened capacity and rate inflation currently impacting the truckload (TL) market. While growing demand due to sustained economic growth is mostly to blame for the current state of the market, it is also important to point out that some capacity has disappeared as a result of government regulations including hours of service. Chainalytics FMIC data indicates that 10-15% of truckloads are moving on the spot market, which would normally be contained to the 3-5% range.

Freight markets are cyclical, so history suggests we are around the halfway point of the tightened market. Capacity imbalances and shortfalls usually last somewhere around a year to 18 months. So far in 2018, tractor and trailer orders are up as high as 30% from the previous few years, which means capacity should begin trickling back into the market as the year progresses. The current cycle has also created a spike in rate negotiations and procurement bids as shippers try to “lock-in” rates and capacity commitments in hopes of gaining better control of their transportation spend.

With all this in mind, there are a few steps an organization can to take to improve their chances of securing capacity:

  • Renegotiate Your Rates: There is a lot of discussion as to the time of year an organization should open a procurement bid, and the truth is, it doesn’t make much of a difference. Carrier contracts have very little binding aspects to them, and both sides simply do their best to maintain the agreement as long as it’s beneficial to both parties. Once the scale tips too far to one side, the party seeing less benefit will almost certainly begin to shop around. Renegotiation allows for the steady communications of needs, which can certainly help an organization secure capacity and keep loads off the spot market until the market loosens again.
  • Run Network Design Sensitivity Models: Network sensitivity models should be run before and after rate negotiations take place to determine if any changes should be made with respect to customer assignments to distribution points. The models will also help determine which benefits exist when directly shipping from the manufacturing plant. Bookending your sensitivity model will identify any required lane changes prior to the bid, while running them again post bid will also reveal additional required lane changes now that you have the actual rates in hand.
  • Run Models to Reevaluate the Geography: Network design models can evaluate your geography and identify areas where opportunities for introducing or expanding a private fleet lie. When coupled with supply chain design approaches to fleet cost modeling, the models can quantify the likely additional costs of operating a private fleet depending upon the number of customers and the volume associated with them. Furthermore, the models can also develop an initial estimate of the delivery requirements as determined by the volume, estimated stops, and estimated miles.

These supply chain network and transportation strategies can be implemented quickly and do not require long-term engagements often associated with traditional network projects. Identifying the optimal method for your transportation lanes is crucial, so seeking the analysis of seasoned supply chain network modelers and transportation experts is always the best bet. To achieve an even deeper route analysis, consider a transportation model project to achieve specific route optimization. And while these methods can provide immediate savings and can increase your chances of staying within your transportation budget, higher long-term savings are achieved through constant analysis of your network’s design and maintaining a good relationship with your carriers.

Jeff Zoroya is a director in Chainalytics’ Supply Chain Design competency where he focuses on helping organizations optimize their supply chain network strategy.

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