Earlier this year, Mike Wackett of The Loadstar reported, “Shippers and BCOs are being advised against signing long-term contracts with ocean carriers, due to the ‘unprecedented uncertainty’ in the liner industry.” As the 2020 peak season approaches, uncertainty continues and forces more companies to rethink their freight management strategies. Uncertainty within all freight markets points to higher freight rates and increased risk of tender rejection. Even in this unprecedented time, it’s important to remember that market volatility is not new. Suppose you are in a market that has an elevated tender market share where rates are exploding higher, and shippers are looking for capacity. In that case, it is a plunging market; carriers are searching for loads as shippers roll-out mini-bids to lower rates to cut transportation costs. However, companies that aggregate and apply data and insights into varying markets should follow these four strategies to survive.
1. Focus on preventing tender rejections
Less than 60 days ago, tender rejections in the U.S. hit an all-time high. These were the result of more e-commerce orders and unprecedented demand. However, the total outbound tender reject index (OTRI) in the U.S. overshadows the less-strained lanes and origins. In other words, the average is reflective of all movements. But by looking into the details, freight management parties can lower tender rejections by changing the routes and leveraging additional modes. It’s complicated and depends on gaining access to real-time freight data to actively reduce the risk of tender rejections.
2. Promote lucrative tenders with higher-than-usual rates for mini-bids
Another strategy involves using bidding activities, particularly mini-bids, to source capacity, including lanes, routes, carriers, drivers, and more, across the industry. Renewed bidding activity must be worth it to all involved, and during market instability, the key lies in making mini-bids more attractive to carriers. While it sounds counterproductive to introduce mini-bids when carriers are in power, mini-bids can help secure more capacity by lowering total rates for guaranteed volume. With that in mind, shippers must avoid making too many promises as that could result in a swing back in freight markets and introduce more instability. Again, the pendulum of freight markets swings in a roughly 18-month cycle of peaks and lulls. And recognizing that timed mini-bids that benefit all freight management parties will improve responsiveness and lower freight spending.
3. Be pragmatic with rates that reflect the nuances of lanes
General rates are one side of rating freight markets. However, nuances within lanes, including ample capacity, regional and local carriers, multimodal options, and even intermodal transport, may hold additional savings. These nuances should be a focus of companies that wish to take a pragmatic approach. Such companies rate shipments based on all nuances, which also lowers rejections. In a sense, it’s the same as strategies one and two. However, it includes avoiding hasty freight bidding processes when market instability is minor. Of course, it all depends on gathering the right data and understanding what that means for each movement.
For instance, a Lane Score of 15, as seen in the FreightWaves SONAR Lane Scorecard feature, might look relatively stable. But if lanes that also terminate at the same location have a score of 36, then it indicates a trend toward additional trouble covering freight. And shippers will want to consider how those scores affect total spend. The same also applies to carriers, LSPs and 3PLs too.
4. Let the data do the hard work, running behind the scenes to enable faster processing, quoting and booking
Lastly, data provides an invaluable pathway to managing all operations throughout volatile freight markets. As reported by Inbound Logistics, “Think about where increased efficiency can help employees and customers interact seamlessly. By identifying specific tasks that can be streamlined through automated methods, businesses can adopt sustainable technology practices that deliver powerful benefits.” By applying freight forecasting data through these back-office functions, freight management parties can encourage high-profit bookings, lower total freight spend, and achieve business growth.
Create a more adaptable supply chain with visibility into all freight markets
Regardless of which strategy a business chooses, they all involve obtaining and applying freight market data. Get the data-driven insights needed to leverage one or all the strategies to navigate volatility in freight markets. And explore how your company can attain that goal by requesting a SONAR demo online today.