Understanding true freight market rates remains deceptive for shippers. Carriers realize that regardless of what contracts exist, it all comes down to carriers and drivers. Drivers in certain parts of the market, particularly driving on high-profit lanes, will choose freight based on their preferences. It’s evident by looking at the current rate of tender rejections in the U.S. As capacity tightens, determining opportunities to balance better the mix of carriers, drivers, lanes and resources to reduce freight spend grows more challenging. To help, look at these top challenges in capturing freight market rate deviations for shippers.
The first issue is the complexity of modern supply chains. A single shipment may involve dozens of individual transactions and multiple legs of the shipping journey. The volume of carriers, lanes, drivers, modes and other variables make measuring a market from an objective standpoint more difficult.
The instability of freight market rates is another problem. Yes, there was a time when shippers could create realistic predictions for freight spend. In 2020, however, the sudden spike in e-commerce and vast market volatility has led to a need to diversify supplier and supply chain partner relationships rapidly. The increased diversity may lead to the assumption that the cheapest rate is the best. That’s not always the case.
As reported by McKinsey & Company, “not all carriers have been affected equally. In the crisis, demand has been volatile, spiking or plummeting by mode and customer profile. Compared with last year, trucking volumes initially increased by about 30% in 2020 as a result of panic buying, then dropped markedly, and are now ticking back up again. Railroad volumes declined by 20% and have not recovered. Last-mile deliveries have surged more than 10 times over, but ocean shipping is down by 25%.”
While generalized historical freight rates are useful, shippers should also consider the elephant in the room of 2020 – accessorials and surcharges. With peak season rapidly approaching, surcharges are about to soar through the roof. UPS has announced peak season surcharges that are 400% above last year. That’s a surprising aspect of freight management, and the other accessorials across hundreds of brokers, forwarders and resellers will inevitably make predicting freight market data more troublesome. That brings us to the next point – do these shippers even have the capacity to collect and analyze that data?
According to a 2018 article published by Overdrive Online, “fleets with 19 or fewer trucks have added 225,000 net new drivers since February 2012, whereas fleets with more than 500 power units have added 155,000 drivers. The industry as a whole added 535,843 net drivers between February 2012 and July 2018. Fleets with fewer than 100 trucks accounted for 322,000 of those additional operators.” As a result, that’s a large volume of drivers you may not include when evaluating current market rates. Furthermore, these drivers play a vital role in the balance between availability to move spot freight compared to working with carriers on a contracted basis. As with any form of logistics, the freight market carries the burden of spot freight regardless of the carriers’ claims. After all, the inability to connect with those drivers will mean fewer drivers to move that precious contracted freight. So, it helps to understand how this limited access to data contributes to the market’s overall condition. Ergo, finding a way to measure the full scale and rates within the market itself – the true freight market rate – becomes the next best way to connect with these smaller fleets and drivers.
Even if shippers can manage to compile the data, what does it mean? Can the data be viewed instantaneously to judge how one lane performs against the other? SONAR’s Lane Signal does just that!
Does the information reveal which lanes explicitly used by a single shipper carrier? will be the most competitive and more likely to result in on-time pickup and delivery? While that’s not likely with in-house systems and or the lagging freight rate-based metrics traditionally used in the freight market today, a true freight market rate forecasting platform does provide those actionable insights for freight market participants.
For example, SONAR’s Lane Scorecard can be a useful tool in tracking the performance of specific lanes, effectively putting all the research and actionable insights into one platform.
Now, imagine how these capabilities stack up when faced with the uncertainty of an economic crisis and global pandemic and an above-average e-commerce peak season. It’s a powder keg for those that cannot look beyond their internal data and see freight market behaviors.
The supply chain is subject to supply and demand. While past conversations focused on getting a mix of contracted rates and spot rates to increase freight capacity, that’s no longer enough. The only way forward is to recognize that deviations in freight rates occur constantly. Leverage a real-time platform that scales with your business to enable informed decision-making and robust freight forecasting. Request a SONAR demo online to learn more about how the right data empowers executable, cost-saving freight management.