As market volatility continues, both shippers and carriers face massive uncertainty regarding capacity, spot rates and freight guarantees. As reported by Bob Jarvis of Logistics Viewpoints, “The biggest constant in transportation today is change. It is forcing companies to rethink how they plan, optimize, execute and collaborate with trading partners. The effort to move closer to the customer – by virtually all businesses – means supply chain networks of old must be replaced with more links, more nodes, and smaller, more frequent shipments. These changes impact shipping lanes, volumes, cost, driver satisfaction, turn-over – all of the things that naturally affect shipper-carrier collaboration.”
While one-time or one-off moves are most characteristic of the spot freight market, moving all freight into the spot market itself is counterproductive. As a result, more carriers and shippers are more likely to consider a mini-bid process to get more competitive freight rates. Mini-bids offer significant opportunities and challenges that may affect the overall competitiveness and value of a renewed freight bidding strategy. For that reason, all freight market participants need to know what these opportunities and threats are and how they can affect mini-bidding efficacy.
Their short-term nature is the most fundamental aspect of mini-bids. They typically last between three and six months and are in effect a revision or addition to an existing annual freight bid contract. As carriers and logistics service providers (LSP) look to reposition assets to manage trucking capacity better, they will offer more affordable rates.
When a falling freight market rate occurs, there is a perception that spot rates are the best solution for all freight. While this is fundamentally true, carriers cannot afford to absorb such tremendous losses. In turn, there comes the point at which the industry will snap back. Thus, carriers are more likely to encourage a renewed mini-bidding process to offer rates competitive with record-low spot rates but with advantages beyond a pure rate service. For example, more flexibility within the appointment scheduling and increased cargo insurance offerings is a way to add value without changing the rate itself. It all depends on what the carrier has to offer.
The two of-choice status designations, shipper of choice and carrier of choice, are critical components in assessing a freight bid strategy. Those shippers and carriers with these distinctions may already receive perks from the other party, such as committed volumes and decreased dwell time for drivers. With that in mind, recognizing the renewed bidding strategy’s value can be vital to building long-term relationships that survive market volatility. In other words, in the future carriers are likely to remember when shippers were more willing to accommodate their needs. The same applies in reverse. It is only a matter of time before the tables flip, and one company is in the other’s prior position.
The shipping industry needs
a new metric – the Market Rate –
to end the spot vs contract battle
While the market volatility across the board may be of interest and reason to consider new freight bids, that is not the rule. Individual lanes, modes and carriers may have significantly less volatility within the market. The inability to access and see that data and its likely trajectory will lead to inadequate freight bids and higher costs.
As market volatility continues, mini freight bids can provide relief for rising transportation costs. However, markets are immensely complicated. And that complexity could lead to a new mini-bid that proves to be less competitive for its duration than initially believed. Thus, any strategy considering a mini-bid should carefully review all market factors and look at past trends to see if now or next month is the right time to consider new freight bids. After all, it would be pointless to get a better deal now if the company could’ve saved an additional 50% in a few short weeks.
Mini freight bids are a viable solution to overcoming market volatility and keeping freight spend under control. However, shippers and carriers still need to understand that mini freight bids can come with risk. Fortunately, leveraging an advanced freight forecasting engine, such as FreightWaves SONAR, can go a long way in ensuring your mini-bid strategy is the best it can be. Request a SONAR demo online today.