A large percentage of North American companies hold their annual transportation sourcing event during the first quarter or last quarter of each year. One of the primary factors driving this decision is the need to have solid insight into transportation costs to feed into the budget cycle for the next fiscal year.
However, there is also a long-held belief by many shippers that Q4 to Q1 is the softest stretch in the transportation market as far as truckload rates are concerned. While true for spot rates, this is not necessarily true for contract pricing. Many shippers have trained themselves to believe that carriers will be hungrier to secure contracts and offer lower contract rates during this time period. But, in truth, carriers are not ignorant to this mentality and don’t adjust their pricing to meet it. So with that in mind, is it time to move your bidding event “off-cycle”?
There is also a long-held belief by many shippers that Q4 to Q1 is the softest stretch in the transportation market as far as truckload rates are concerned. While true for spot rates, this is not necessarily true for contract pricing.
Hosting your bid event during an off-cycle period can be beneficial. For starters, you can reasonably expect to receive some additional attention from carriers during the second and third quarter. This is due to a less crowded field of shippers as many of the larger corporations, i.e. those with $200M+ in transportation spend, likely have their truckload sourcing events wrapped up by this point. Off-cycle bidding can allow for quicker response times, creating a smoother experience for both parties. However, you want to make sure you avoid bidding during your peak season to avoid complications.
Generally speaking as it pertains to truckload sourcing events, it’s important to remember that the implementation or “go-live” of new rates and carrier assignments should be done when it has the least impact on your business operations. This requires some organizational flexibility, for the best time to implement rates is typically at your “low point” or the steadiest point of your season. Don’t fall into the trap of trying to time the market; it’s a futile endeavor. It’s best to stick to your budget cycle and conduct the bid when it will be the least disruptive to your business.
Our research, both as transportation professionals and through our Freight Market Intelligence Consortium (FMIC), has never shown a single point of the year to be better for bid events than any other when freight markets are steady. While spot rates are often leading indicators of what will happen in the contract markets, it is really only when spot rates are deviating more than 15% (either way) that we see large impacts to contract pricing. Also, be careful not to place too much emphasis on fluctuations in the spot market, especially those that are predictable like produce season.
Fortunately, the truckload market has pulled back significantly since the peak we experienced in 2018. Now is a good time to go to the market as there are definitely savings to be found with your contract rates, especially if you locked in pricing in early-mid 2018 which turned out to be the high point of the market. Furthermore, there is a new proposal concerning hours-of-service (HOS) restrictions coming in June from the FMCSA. Many professionals anticipate a loosening of these restrictions, leading to a potential increase in capacity and softening the market somewhat further.
Getting new contracts in place before the implementation of the National Drug and Alcohol Driver Database supposedly launching in January of next year is advisable.This new database will make all failed drug and alcohol tests given to drivers available to all carriers. This information will no longer be a set of records exclusive for each transportation company. The impact will likely mean a decrease in the existing driver pool, with some estimates being as high as a 20% reduction.
Now is a good time for shippers as far as rates are concerned, so if you have the opportunity to go out to bid, or run some mini-bids, you may find some savings that weren’t available a few months ago. While securing great rates is certainly the goal, remember that a bid is only as good as your management of it once it’s complete, so make sure you’re taking the necessary steps to ensure your carrier relationships remain successful. If your organization is exploring bid opportunities or looking for mini-bid saving opportunities, seek the expertise of experienced transportation professionals to optimize your transportation strategy.
Kevin Zweier is Vice President of the Transportation competency at Chainalytics. In this role, he manages the delivery of projects related to transportation procurement, fleet modeling, and systems and operational assessments.
A senior manager in the Chainalytics’ Transportation competency, Bryan Wyatt has over 20 years of experience and expertise in transportation operations, last-mile delivery, strategic sourcing, data analysis and logistics planning.
