Tools and data can provide shippers with an edge after pivoting to short-term bids in the wake of freight market volatility during the COVID-19 pandemic, according to a recent whitepaper.
Reuters Events, in partnership with logistics technology provider Emerge, released the whitepaper that highlighted changes in the freight bidding process between shippers and carriers since the pandemic. The frequency of bidding has increased amid volatility in freight rates and capacity. Bid terms have become as short as three months.
“Typically, most (request for proposal) invitations happen in Q4 of every year, with the awards taking place in early Q1 of the next year,” said James Thomas, regional sales fleet manager at carrier ATS. But as market volatility increased during the pandemic, the process started happening all year long.
“Considering the market fluctuation, shippers are also opting out of the bidding process,” said Daman Grewal, director of strategic partnerships at Centurion Trucking. “Even in a shipper-dominated market, businesses are cautious and want to hold onto partnerships they’ve established with their carrier base. The primary concern seems to be maintaining long-term partnerships, and they don’t want to jeopardize that.”
According to the whitepaper, benchmarking tools are available to shippers to help them evaluate and negotiate pricing. Blake Jackson, head of transportation at Golden State Foods, said the tools allow for “an immediate comparison against your competitors and the rest of the market… (Benchmarking) equips us with the most precise transportation cost assumptions, ensuring that our pricing proposals to clients are both competitive and realistic.”
The whitepaper shows that shippers opting for short-term bids, or micro-bids, can protect their profits from price volatility.
“Personally, I love micro-bids,” said Gayle Nieuwenhuizen, logistics manager at Centurion Trucking. “Many of our customers prefer to handle their business transactions on a micro-bid basis. You aren’t locked into a one, two or three-year term RFP; there’s no need to predict market fluctuations, seasonality and other factors over an extended period.”
Harmen Claassen, global senior transportation manager at Hiab, explained that the pandemic led the company to micro-bids from contracts that typically had two-year terms.
“Our primary goal post-pandemic has been to negotiate with our current carriers and get competitive bids to keep incumbent prices in check,” Claassen said. “We’re not actively seeking to change partners but rather to ensure our existing ones remain competitive.” Claassen added that Hiab works with external firms to determine the best time to seek new bids.
According to the whitepaper, using micro-bids increases communication between shippers and carriers and allows them to better gauge existing market conditions.
“For instance, I can call a client to discuss predictions like the Christmas rush and freight rate dips, and strategize for the upcoming months,” Nieuwenhuizen said. “We can find a middle ground considering both the slow and peak periods. This approach ensures a balanced and transparent partnership.”
The whitepaper shows that shippers started to move toward micro-bids after carriers declined to provide many with capacity amid the pandemic. At the time, those shippers had to go to the spot market for capacity.
“The industry has become exceptionally competitive in recent years, and shippers have long memories,” Thomas said. “If you were a carrier that stood by them during tight times when the odds favored the carriers, a loyal shipper will remember and value that relationship. They won’t be quick to switch to a new carrier just to save a few pennies per mile.”
According to the whitepaper, shippers can leverage data to help address market volatility. However, some shippers have struggled to make sense of their data.
“Leveraging business intelligence sounds great in theory, but in practice, it can be overwhelming given the multitude of issues that can occur within a logistics network on any given day,” said Kyle Jepson, senior vice president of product at Emerge. “Information overload is a genuine issue. Being able to streamline and access the right data at the right time is vital.”
The whitepaper shows companies can benefit from separating data into two categories – one for strong signals and the other for weaker signals.
“Strong signals are backed by information that is easily discernible and measurable,” Jepson said. “For instance, a company’s internal KPIs are often very strong signals. They are great from the business health standpoint as these signals are strong and deterministic.”
Still, strong signals can be lagging indicators and might not help companies respond to events as they reflect historical trends. Weaker signals, however, might lead a company to a developing trend. The ability to measure weaker signals might allow the company to develop plans that result in a competitive advantage.
“The need for data-based intelligence to make decisions quickly is important, but the human element in the equation cannot be discounted,” Jepson said. “Executives must leverage the inherent knowledge of what got them to top management, and use data insights to direct them instead of acting on gut feeling. To use a metaphor, the data can bring you to the 1-yard line, but human interpretation gets you over the line. People are ultimately driving these decisions on how to utilize available data.”