Ship This Way: Finding cost-effective carriers with freight market intelligence

Shippers live in a world wrought with uncertainty. You never know for sure if a preferred carrier will be available to transport any particular load at a given time or what the spot market might look like if you find yourself turning to it. That’s why so many shippers employ transportation management systems (TMS) to help stratify options and ensure they are getting a good deal — but is it always the best one?

Implementing routing guides inside your TMS can help automate the assignment of carriers to loads in a cost effective manner, but there’s an extremely important piece of the puzzle many shippers fail to incorporate. Fluctuations in the highly dynamic spot market can lead to larger than expected differences between those spot rates and contracted rates. Sometimes, the spot market is actually cheaper than rates you have negotiated. It can be difficult to know exactly for which lanes, geographies and time of year this is the case.

Unless your TMS ecosystem includes superb benchmarking intelligence and knows to look for these rates, it may select a more expensive rate from a preferred carrier that is showing availability and end up costing you more.

Identifying opportunities to save

The first step to ensure you are maximizing the probability of getting the best deal on every lane is to know how to uncover when and where better options are available. This is something that visibility to large amounts of real market data can help inform. In particular, it requires market intelligence that incorporates the highly dynamic spot market as it compares to negotiated contract rates. High quality benchmarking data can pinpoint lanes where market trends are driving spot market price differentials up or down. Multiple factors influence the markets that are experiencing these changes, and they can vary seasonally.

Analyzing the options

Once you have identified opportunities where the spot market may provide better alternatives to negotiated rates, it’s time to go through the process of weighing those options. Then, those costs must be measured against expected savings versus carrier expectations and potential differences in service quality. Before taking advantage of these options, it is important to make sure doing so does not violate any volume agreements that have been negotiated with preferred carriers. A shipper certainly needs to ensure they do not chase pennies and harm relationships with their preferred contracted carriers.

Act on better deals

When an opportunity to change your spot mix won’t upset negotiated contracts, you can then teach your TMS how to adjust its carrier selection algorithms. This often means using APIs or batch uploading spreadsheets that contain the newly updated routing guide rules. Sophisticated systems can integrate with benchmarking services and set up spot carriers with rates determined by service lookups from that service. Either way, it’s important to ensure newly uncovered opportunities are woven into your TMS’s operating rules.

A regular cadence of searching for opportunities to adjust routing guides based on changes to the spot market differential, or other factors like abandoning a carrier that is not performing well, helps optimize your carrier utilization and save money.

Updated routing guides in your TMS should have expiration dates so you don’t run the risk of growing out of sync with market realities. A reasonable starting point could be two to three months. This forces the necessary discipline of continually reviewing your carrier mix. A regular cadence of searching for opportunities to adjust routing guides based on changes to the spot market differential, or other factors like abandoning a carrier that is not performing well, helps optimize your carrier utilization and save money. Be careful to not depend too heavily on either automated changes or human decision-making. The best outcomes are achieved when human review of benchmarking data is used to target the most actionable intelligence.

A thoughtful combination of market intelligence, disciplined analysis and flexibility in your TMS provides a path to taking advantage of favorable swings in the spot market without losing the reliability typically associated with use of preferred carriers. When your spot strategy is robust enough to take advantage of changes in the market, you can expect to realize savings in transportation costs that can be sustained over time. Getting there requires up to date market intelligence, focused analytics and disciplined TMS processes.

Roy Ananny, a director in Chainalytics’ Transportation practice has extensive transportation management system (TMS) experience — as a user, creator, consultant, and IT manager. At Chainalytics, he focuses on helping companies identify opportunities for supply chain and logistics improvements and helps them implement systems and workflow changes to deliver that value.