Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

Buying Truckload: When Do You Dip Into the Market?

BuyingTruckload

When is the best time to procure truckload (TL) capacity? There is no single answer to this question because buying practices differ from shipper to shipper. However, understanding the timing options can help transportation managers to fine tune their TL procurement programs.

First, let’s look at a number of approaches employed by shippers. In the next post we’ll consider some general factors to consider when scheduling buying events.

The spectrum of bidding practices runs from serial procurers to shippers that are relative strangers to these exercises. For many players the decision is largely made for them by the dictates of the markets in which they compete. Here is a sample of practices currently followed.

High-frequency bidders. If you want to faithfully track the market then every load should be put out to bid. For most shippers this is impractical, but there are some notable exceptions. A company that serves the new construction market, for example, does not fix long-term contract rates because their shipping needs are in a constant state of flux. In general, companies that specialize in project freight tend to be frequent bidders because each shipment is unique. The idea of basing a TL procurement strategy on the spot market is untenable for many shippers, but you can take some of the “spot” out of the market with good planning.

Seasonal players. Although many seasonal shippers are regular contract bidders, some synchronize their procurement strategies with the market’s demand cycles. This can be extremely challenging. Take, for example, the plight of agricultural shippers we described in the TMC post A Fresh Crop of TMS Applications. During the growing season produce is often picked in the early morning, processed, and made ready for shipment that evening. While loads are in transit from, say, from California to New York State, freight rates can jump 10% to 15% in a single day or even within hours.  There is high demand for truck space just prior to major holidays, and capacity crunches can follow these peaks as well due to delays in getting empty trucks back across the country. These market fluctuations impact the way shippers procure transportation.

Hybrid buyers. A combination of contract and spot market bids is the best mix for some transportation managers. Perhaps 90% of the loads are moved by contract carriers, and the remaining 10% is allocated to spot providers to give the company more operational flexibility. Some shippers maintain a backup matrix of carriers to avoid using the true spot market. Examples include low-volume players such as consumer products companies, where new lanes have been introduced, or on inbound legs where the shipper has a large and diverse supplier base.

Fiscal adherents. In common with any other procurement activity, the buying of truck capacity is shaped to some extent by the company’s budgetary cycles. By aligning procurement events with these cycles, transportation managers can avoid having to resubmit their budgets to the finance department because their freight costs have suddenly changed.

Procurement skeptics. Some shippers doubt that they will recoup the costs of regular bids and only stage these contests occasionally or not at all. Some transportation managers point out that they can time the market and force carriers to hold below-market rates. Another argument is that rates are adjusted on an ongoing basis as part of the freight management process, so regular procurement events are not needed.

Regardless of which camp you are in, each of these strategies offers lessons about the timing of freight transportation procurement. The trick is to establish a timetable that supports your business needs.