Freight network size matters when deciding on the best method for procuring truckload transportation. However, certain procurement principles need to be factored into your buying strategy regardless of how much freight you plan to move.
In general, small networks that employ a limited number of transportation service providers (TSPs) can meet their truckload needs with relatively simple, spreadsheet-based procurement exercises (TSPs include carriers and intermediaries such as third-party logistics providers and transportation brokers).
Large players with complex networks built around multiple lanes and extensive route guides usually require a different approach that involves sophisticated, constraint-based bidding tools.
The cost of renting an advanced combinatorial bidding tool plus consultants’ time can amount anywhere from $15,000 to $100,000 or more. It’s difficult to justify this level of investment if your annual freight spend is in the $2 million neighborhood. On the other hand, shippers that budget around $15 million-plus for truckload capacity annually can make a case for more expensive procurement events.
Straight cost comparisons like these can be a tad misleading. On a cost-per-load basis, for example, high-volume bids can actually be less costly than low-volume events but require more decision-making effort.
Also, it’s worth noting that the cost of these events includes a sizeable time element. Even for small shippers, price discussions with TSPs can consume as much as 20 to 40 hours of the procurement team’s time.
Another possible misconception is that low-volume players can afford to be more cavalier in their approach to truckload procurement because the number of moves involved is relatively modest. The truth is that ignoring best practices in this area can be costly for both big-league and small-league shippers, as well as those that fall in between.
This was one of the most striking findings of the Stale Rates research study carried out by Iowa State University and sponsored by C. H. Robinson and TMC.
Here are three key practices highlighted by the study that should be part of your procurement strategy whether you buy truckload capacity via a spreadsheet or a high-level procurement tool.
Regular (annual) procurement events can lower freight rates. Regularity promotes network alignment for both TSPs and shippers because rates tend to be adjusted more often than when bids are sporadic. And in an environment where procurement cycles are predictable, TSPs have a better sense of how long to hold contract rates.
It pays to keep abreast of market movements. The Stale Rates study found that lane costs tend to increase for a period of roughly 328 days after a procurement event and then moderate, underscoring the changeability of the trucking market. Shippers of all sizes need to stay in tune with the market’s ebb and flow.
Ad hoc is not easier. Don’t fall into the trap of assuming that revisiting freight rates sporadically is less work than regular reviews. Rates change even without procurement events; contracts still have to be renegotiated. In fact, the random approach creates uncertainty and people who perform procurement events infrequently are more likely to miss cost-saving opportunities.
Clearly, there is a direct correlation between how much you need to invest in acquiring truckload transportation and the scale of your freight operations. But when it comes to effective procurement practices, there are some habits that are worth adopting whether you’re in the $2 million, $20 million, or $200 million spend bracket.