Skip to content
Search AI Powered

Latest Stories

transportation report

Skinning the tight-capacity cat

It's getting rough on the roads for truck shippers. But is a rate hosing foreordained?

Skinning the tight-capacity cat

The numbers and anecdotes tell the story. Truckload and logistics giant Werner Enterprises Inc. ran on some days in January at 145 percent of capacity. Celadon Group Inc., another large truckload carrier, had days when it was turning away 800 to 1,200 loads. Non-contract, or "spot," rates for refrigerated truck capacity were quoted as high as $10.38 a mile in January.

Shippers canceled bids midstream because they were put off by the rates they expected to receive. A sales rep for a large less-than-truckload (LTL) carrier walked into a shipper's office, proposed a large rate hike, and said the contract would not be renewed if the new rates were not accepted. The leverage of asset players in today's ultra-tight-capacity environment may have been best summed up by a trucking executive who said, "Our negotiating strategy is indifference."


As senior vice president, supply chain and transportation for Transplace, a large third-party logistics service provider (3PL), Ben Cubitt has seen plenty in his time negotiating motor carrier contracts. When asked recently how the company was coping with what some are calling the mother of all capacity-tightening cycles, you could almost hear Cubitt's shoulders shrug over the phone.

Working about 15 open bids each week as of the beginning of February, the start of the busy spring truckload contract cycle, Cubitt reported his team has typically negotiated rate increases in the low- to mid-single-digit range and price reductions in the 3 to 8 percent range. Asked how he does it, Cubitt joked that it's "that crazy lane magic."

Hardly. Transplace analyzed each lane to determine price anomalies among the various carriers. Often, there is one carrier that underbids the rest because the specific lane may be a better fit for its network, according to Cubitt. None of the competing carriers know how each is bidding, Cubitt said. Even though carriers utilize more sophisticated technology than ever before to support their bids, "carrier pricing is not that scientific," he said.

Cubitt recommends that Transplace's customers put all their lanes out for bid each year and focus on eight or so core carriers. This gives shippers more leverage and efficiency than if they had to manage 25 or so separate negotiations with multiple providers, he said. At the same time, however, Transplace will not hesitate to replace an incumbent carrier—even though its shippers place a high value on incumbents—if a reputable alternative comes in with a meaningfully lower bid, he said.

THERE'S INEFFICIENCY SOMEWHERE

Cubitt's comments underscore the notion that, in what by all accounts is a brutally tight market for truck capacity, there are still many inefficiencies that can be discovered and exploited. Good intermediaries can leverage capacity availability in ways that even large shippers can't on their own, brokers say. The key, according to Jeff Tucker, who runs Tucker Company Worldwide Inc., a family-owned broker and 3PL based in Haddonfield, N.J., is for shippers to stop thinking of brokers as a fallback mechanism and instead to "stand shoulder-to-shoulder with us" as partners. Shippers that have the volume and, perhaps more important, the culture to work strategically with intermediaries can "scale up their capacity" in ways they may never have thought possible, Tucker said.

Tucker said his company's business is split 50-50 between contracts and transactions conducted on the spot market. Tucker's contract portion is around twice the level held by a typical broker. Jeff Tucker said his company deals primarily with larger fleets that are more inclined than smaller fleets or owner-operators to work with brokers in contractual relationships.

Tucker is hell-bent on steering his firm toward more contract work. "It is my sole mission in life in 2018" to get more shipper business under contract, he said in a phone interview.

Yet weaning carriers off the spot market will likely be a difficult chore, especially with spot rates up about 30 percent year over year, on average, as of early February. For months, Truckstop.com, one of the industry's two main spot market loadboards, has been processing an average of 500,000 to 600,000 loads during each 24-hour cycle, according to Brené Hutto, the company's chief relationship officer. That pace is expected to continue through most of 2018, Hutto said early last month.

By contrast, in 2014, when capacity tightened considerably due to adverse weather across a large part of the country, Truckstop handled an average of 400,000 loads during each 24-hour period, Hutto said.

Cubitt said he believes most brokers will continue to focus on the spot market as long as tight capacity and elevated rates mean fat margins for them. However, brokers' emphasis on today's spot market lucre may be ignoring the bigger picture. According to Cubitt, in mid-2016, shippers desperate for capacity assurance began shifting portions of their volume toward asset-based carriers and away from brokers and the transactional market. The migration toward assured capacity became more pronounced after retailers started imposing stringent delivery requirements that came with penalties if they weren't met, he said.

The poster child for the latter is retailing behemoth Walmart, which last August began requiring its U.S. truckload and LTL carriers to deliver all orders in full on the "must-arrive-by date" 75 percent of the time (for truckload haulers) and 33 percent of the time (for LTL) or else face penalties. Effective April 1, Walmart plans to ratchet the requirements up to 85 percent for truckload carriers and 50 percent for LTL.

A FURTHER OPTION

Another tool that shippers have at their disposal is the so-called mini-bid, where shippers bid out small portions of their volume. This approach has been effective at minimizing exposure to big price hikes, while reducing the cost and resource burdens of annually bidding out an entire network, experts said. Even Cubitt, who advocates that shippers go out with full bids each year, admits that shippers are suffering from "bid fatigue" because of the time and resources consumed in what is an extensive annual process.

The annual full-bid dance can also be painful for carriers, as it may force them to regularly turn over the bulk of their lanes. Big truckers have to "redraw the whole map every year," said C. Thomas Barnes, a long-time transport executive who is now president of project 44, a Chicago-based logistics IT (information technology) provider.

Barnes, who bid out large volumes when he ran the multimodal unit of the former Con-way Inc., said he would insist on contracts beyond one year and do relatively frequent "surgical bids," another name for mini-bids, within the contract's time window.

CHANGE THE GAME

No matter the size of the bid, shippers would be wise in this environment not to delay putting them out, according to Michael T. Regan, founder of consultancy Tranzact Technologies Inc. Many shippers have delayed their bids to see if the market quiets down, Regan said. However, such a move is potentially disastrous because truck pricing and capacity have entered an "unprecedented" upcycle that could last at least a year and perhaps longer, said Regan, who has been around the industry for decades. Not surprisingly, he is advising clients to get their bids out sooner rather than later.

Regan and Barnes also bemoan the growing influence of procurement managers in bid preparation. Procurement folk, they said, view transport as a pure commodity where the lowest cost rules. In addition, procurement managers lack the awareness of logisticians of how to extract sustainable value out of their transport spend, they said.

Barnes said that many shippers, particularly big companies with large volumes, have a pattern, especially in periods of abundant capacity, of demanding double-digit rate cuts only to discover their service levels worsen as a result. Putting such a squeeze on carriers is unlikely to succeed in today's climate and will come back to bite shippers even if they could get the upper hand on prices, Barnes said.

"Short-term thinking gives you medium- to long-term pain, and people don't realize that," he said.

In theory, everyone says they want rate and capacity stability. In practice, though, shippers have budget targets, while carriers have rising costs and a once-every-dozen-years-or-so profit opportunity. Something has to give, according to Cubitt. "Even those who work toward a stable environment can't figure out how to get it," he said.

Tucker said the key for shippers and brokers is to recognize the lanes carriers want to play in and feed them enough good freight to make the game profitable. Shippers must realize that carriers and brokers will be reluctant to lock in prices unless the lane awards make good financial and operational sense, he said.

"There are tons of opportunities for brokers and carriers to solve lane problems for shippers," Tucker said. But, he added, "twisting arms isn't the way to lock in capacity."

The Latest

More Stories

Warehouse automation project orders fell 3% in 2024

Warehouse automation project orders fell 3% in 2024

Warehouse automation orders declined by 3% in 2024, according to a February report from market research firm Interact Analysis. The company said the decline was due to economic, political, and market-specific challenges, including persistently high interest rates in many regions and the residual effects of an oversupply of warehouses built during the Covid-19 pandemic.

The research also found that increasing competition from Chinese vendors is expected to drive down prices and slow revenue growth over the report’s forecast period to 2030.

Keep ReadingShow less

Featured

drawing of woman using supply chain software on tablet

Körber Supply Chain Software to rebrand as “Infios”

The logistics tech provider Körber Supply Chain Software continues to position itself in a fast-changing business landscape, aligning itself today with the digital transformation consulting firm Zero100.

That move comes shortly after Körber Supply Chain Software acquired the transportation management system (TMS) software firm MercuryGate, and then launched a literal rebranding of its name to “Infios.”

Keep ReadingShow less
screenshot of kodiak hub software

Swedish supply chain tech firm Kodiak Hub expands to U.S.

The Swedish supply chain software company Kodiak Hub is expanding into the U.S. market, backed by a $6 million venture capital boost for its supplier relationship management (SRM) platform.

The Stockholm-based company says its move could help U.S. companies build resilient, sustainable supply chains amid growing pressure from regulatory changes, emerging tariffs, and increasing demands for supply chain transparency.

Keep ReadingShow less

Logistics gives back: February 2025

Here's our monthly roundup of some of the charitable works and donations by companies in the material handling and logistics space.

  • For the sixth consecutive year, dedicated contract carriage and freight management services provider Transervice Logistics Inc. collected books, CDs, DVDs, and magazines for Book Fairies, a nonprofit book donation organization in the New York Tri-State area. Transervice employees broke their own in-house record last year by donating 13 boxes of print and video assets to children in under-resourced communities on Long Island and the five boroughs of New York City.
  • Logistics real estate investment and development firm Dermody Properties has recognized eight community organizations in markets where it operates with its 2024 Annual Thanksgiving Capstone awards. The organizations, which included food banks and disaster relief agencies, received a combined $85,000 in awards ranging from $5,000 to $25,000.
  • Prime Inc. truck driver Dee Sova has donated $5,000 to Harmony House, an organization that provides shelter and support services to domestic violence survivors in Springfield, Missouri. The donation follows Sova's selection as the 2024 recipient of the Trucking Cares Foundation's John Lex Premier Achievement Award, which was accompanied by a $5,000 check to be given in her name to a charity of her choice.
  • Employees of dedicated contract carrier Lily Transportation donated dog food and supplies to a local animal shelter at a holiday event held at the company's Fort Worth, Texas, location. The event, which benefited City of Saginaw (Texas) Animal Services, was coordinated by "Lily Paws," a dedicated committee within Lily Transportation that focuses on improving the lives of shelter dogs nationwide.
  • Freight transportation conglomerate Averitt has continued its support of military service members by participating in the "10,000 for the Troops" card collection program organized by radio station New Country 96.3 KSCS in Dallas/Fort Worth. In 2024, Averitt associates collected and shipped more than 18,000 holiday cards to troops overseas. Contributions included cards from 17 different Averitt facilities, primarily in Texas, along with 4,000 cards from the company's corporate office in Cookeville, Tennessee.

Catch a thief, stop a vandal

Electric vehicle (EV) sales have seen slow and steady growth, as the vehicles continue to gain converts among consumers and delivery fleet operators alike. But a consistent frustration for drivers has been pulling up to a charging station only to find that the charger has been intentionally broken or disabled.

To address that threat, the EV charging solution provider ChargePoint has launched two products to combat charger vandalism.

Keep ReadingShow less