How to Use a TMS to Ride the Market Rollercoaster
Editor’s Note: Last week, Glenn Koepke contributed a blog post for Logistics Viewpoints. We’re sharing his original post here because market volatility is always a relevant topic. Please share your thoughts and read the blog post, How to Use a TMS to Ride the Market Rollercoaster.
In the trucking business, market volatility is part of the terrain, but over recent years fluctuations in supply and demand seem to have become more erratic. How can transportation management system (TMS) technology be used to help you to deal with these market swings?
A number of forces, both manmade and natural, feed the market’s ups and downs. As Jason Craig relates in his Transportfolio® blog post, Turning of the Screw: The Pressure Supply Chains are Under, these stresses and strains have been building up for some time.
The hours of service regulations that went into effect in July 2013 tightened the screw on market capacity. Driver shortage issues add to the pressure, as does the upswing in carrier bankruptcies in late 2013 as a result of adverse economic conditions.
Top of the natural forces list must surely be the weather. Having just endured a harsh winter, everyone has a bad weather story to tell. The fall out for the transportation industry includes tighter capacity due to equipment positioning problems, shorter lead times as schedules are disrupted, inbound delays, and higher accessorials. For more on the impact of the weather see the Transportfolio blog post, Managing Weather’s Impact on Transportation Capacity and Costs, by Mark Derks.
Jason Craig points out in his post that capacity volatility always leads to rate volatility. As the market’s unpredictability increases, shippers need to work more closely with their service providers to smooth out the peaks and valleys. They can also look to their TMS solutions—whether in-house or part of a managed services package—to help them manage changeable markets.
TMS scorecarding is one tool you can use to handle the market’s ebb and flow.
Scorecards present a clearer picture of carrier performance. For example, what are providers’ load acceptance rates and charges and how do these parameters deviate from their contractual obligations? The information is updated regularly, enabling you to identify anomalies and trends. Also, the reliability of the information is likely to be improved if the TMS provider is responsible for the data inputs rather than carriers’ self-reporting systems.
This granular picture of how service providers are performing puts you ahead of the game when facing extreme market movements. You can use the lead indicators and analyses derived from the scorecards to develop contingency plans, or to help you dig out of a capacity hole when the market takes an unexpected turn. Perhaps the data shows that a core carrier is rejecting loads in favor of more profitable business in a tight market, even though they are contractually committed to moving your freight. How can you improve the carrier’s compliance rate or find alternatives?
Another option is deploying a TMS to improve the effectiveness of a spot bid strategy.
In general, shippers shy away from more costly spot capacity. However, in a difficult market where you are looking for carriers at the last minute, this alternative might be the best, or even the only, solution. Spot bids allow you to engage in competitive bidding for exception freight rather than having to rely solely on one carrier to move the loads.
Knowing exactly how this option fits into your overall transportation strategy improves its effectiveness.
The TMS solution can shed light on why and when you are resorting to the spot market. For example, are your lead times unrealistic, is a carrier’s network ill-suited to your business, or are you simply expecting too much from a carrier forcing them into high rejection rates? Another possibility is that lead times are overly variable because of communications disconnects.
Nobody knows how freight markets will track in the future. However, given factors such as climate change and the likelihood of political upheavals, it’s reasonable to assume that high levels of volatility are here to stay. Used properly, TMS technology can make it easier to ride these twists and turns and enable you to buy truck capacity more effectively in the market.