4 Things Shippers Can Do to Prepare for a Tighter Truckload Market
After six consecutive quarters of spot rate deflation, Q3 2019 marked a turning point. Rates continued trending upwards through Q4 — as detailed in our most recent Coyote CurveTM Market Forecast.
Though truckload capacity still feels readily available, tender acceptance is relatively high and service levels are holding strong, the forces driving the market capacity cycle have already turned over.
We are heading back into an inflationary market.
The forces driving the market capacity cycle have already turned over.
Whether you ship a few truckloads a month or manage a multi-million-dollar freight budget, there are some steps that any truckload shipper can take now to prepare for an inflationary spot market.
1. Explore Mode Conversion Opportunities
As we head towards year-over-year inflation, carrier capacity will begin to tighten up relative to demand.
Spot rates will rise and tender acceptance will likely fall as carriers look to more profitable opportunities in the spot market.
To learn more about truckload market dynamics and how the market capacity cycle operates, read Understanding the U.S. Truckload Market.
Anything that limits your business’s exposure to the truckload market will probably be a net gain. Exploring mode conversions is a great way to diversify your risk, add capacity and protect your freight budget.
6 Reasons to Consider Mode Conversions:
- Adds new sources of capacity
- Diversifies risk of service disruption
- Mitigates cost volatility
- Reduces spend
- Improves network efficiency
- Could help minimize carbon footprint
There are a few different options you can look for in your network. Let’s go over the basics of each.
Full Truckload to Intermodal
Converting your highway freight to the rail is the first and most obvious option.
There are no hard-and-fast rules to determine which lanes are good candidates for conversion, but there are some basic guidelines.
If the lane currently ships in a 53’ dry van, is at least 400-500 miles in length and has origin and destination points that are within ~100 miles of intermodal rail facilities (which are in almost every metro area), it’s worth getting a rate.
If you are new to intermodal (or want to brush up on the basics) read the Beginner’s Guide to Shipping on the Rail.
When comparing intermodal rates to your current truckload rates, keep in mind that truckload pricing will likely look much different in Q3 and Q4 than it does today. Model in 10%-20% rate increases and see how the two modes stack up.
Truckload rates may or may not spike that high, but it will at least give you an idea of what is possible and help you put a strategy in place.
If you identify lanes that can convert to the rail, it’s important to understand the few key differences between the two modes — such as transit expectations, blocking and bracing, and accessorial norms.
Knowing the basics will help you avoid operational hiccups. Read the 4 Things Every Shipper Should Know about intermodal to get more details to help you prepare for conversion.
Full Truckload to Volume LTL
This is not as obvious, but anything that minimizes your exposure to the spot truckload market in the back half of 2020 will likely be a benefit to your budget.
Volume LTL is essentially a backhaul service from LTL carriers. If you have any truckload shipments that are between five and 12 pallets, volume LTL could be a great cost-saving option.
Read our guide to Volume LTL to more about the service, how it compares to partial truckload and how to implement into your network.
2. Implement ‘Shipper of Choice’ Strategies Now
You should always strive to be a ‘Shipper of Choice’ — regardless of market condition — but it is especially important as we transition from a shipper’s market to a carrier’s market.
As more freight options open up for carriers, these best practices make a difference in securing the capacity you need.
7 Best Practices for Shippers of Choice:
- Have a fair accessorial schedule
- Pay fast
- Tender with ample lead time
- Simplify your appointment scheduling process
- Have realistic transit times
- Turn drivers as quickly as possible
- Provide basic amenities to drivers
Though these are not all possible for every shipper, it’s still important to look at your own supply chain and find areas where you strive for improvement.
Becoming a preferred shipper is not an overnight process, but the sooner you start implementing positive change, the better position you’ll be in relative to your competition.
Let's go a little deeper into each best practice.
Have a fair accessorial schedule
Make sure it is in line with industry standards. Leverage relationships with your carriers, 3PLs and other shippers to see how you compare.
As the saying goes, in business cash is king — that’s especially true for carriers, in particular smaller ones. Favorable payment terms can make a huge difference for a five-truck operation. Anything under 30 days is ideal.
Tender with ample lead time
This is not always possible, but the sooner you can get a load tender to your carrier, the better they will be able to plan. 48 hours or less is ideal.
Simplify your appointment scheduling process
Put yourself in your providers’ shoes. What is it like to get an appointment set? Is it a huge operational lift, or is it quick and easy?
As options open up for carriers, these best practices make the difference in securing capacity.
Have realistic transit times
Whenever possible, schedule pick up and deliveries that set carriers up for success.
- If transit is too tight and a late driver will have to wait several hours for the facility to work him or her in, the load is not attractive.
- If the pick up and delivery are too far apart, and a driver will have to sit around to get unloaded, the load is not attractive.
Turn drivers as quickly as possible
The industry standard is two hours or less — anything over that, and your facility is at risk of developing a negative reputation among drivers.
Depending on your freight and operations this may not be possible, but nonetheless important to keep in mind.
Allowing for drop trailers when it works for you and the carrier is a great way to improve efficiency.
Provide basic amenities to drivers
Unfortunately, these common sense things are not always common. Access to bathrooms, vending machines, waiting rooms, wi-fi and a friendly smile at the dock go a long way.
3. Measure Carrier Performance
Whether you just awarded hundreds of lanes in an annual RFP event, or a small shipper relying solely on the spot market, it is important to have a data-driven supply chain — tracking carrier performance is a key part of that.
Make sure you can track primary tender acceptance and on-time performance.
If you can’t track it, how can you make improvements?
Communicate your KPIs to every carrier you work with — they should be crystal clear on your expectations. Regularly evaluate your carrier base. Give them report cards — their performance should not be a mystery to you or them.
You should also have a process in place for taking action for poor performance when warranted.
Again, clearly communicate that process with your providers and make sure you stick to it. Inflationary markets will show you which providers are serious about being your business partner.
4. Set Durable Contract Rates
Not all shippers have the ability to secure committed, primary rates in a procurement event, but if you do, make sure to account for the current state of the market capacity cycle.
Though spot rates are on the rise, contract rates — which take about two to three quarters to respond to spot rate activity — are still deflating. As these two indexes cross, it will create market turmoil.
If you are pushing for another round of deep rate reductions in your next bid, those rates may not hold up later in the year as carriers move capacity into the lucrative spot market.
Though it doesn’t feel like it now, the second half of 2020 is going to look different than 2019. Whether the market peaks as high as 2018 depends — in large part — on the economy and possibility of a recession.
Regardless, you should anticipate more exposure to the spot market than 2019.
For more best practices on how to conduct a better transportation RFP, read these 7 steps from a procurement expert.
It’s Not Too Late!
Though your 2020 strategy may already be underway, if you found some tips that could better prepare you for an inflationary market, it’s not too late to act.
Any improvements you make now will help you ship better later. The faster you act, the more likely you will beat your competition to the punch.
4 things you can do to prepare for a tighter truckload market:
- Explore mode conversion opportunities
- Implement “shipper of choice” strategies now
- Measure carrier performance
- Set durable contract rates
Want to see Coyote’s Chief Strategy Officer present our market forecast and outline best practices? Watch the on-demand webinar now.