Effective logistics carrier management depends on best practices throughout your truckload freight procurement.

Logistics Carrier Management: Best Practices for Transportation Partners

A strong carrier procurement process accommodates several criteria. Common full truckload freight carriers vary in size, regionality and capabilities. In your logistics carrier management efforts, these factors will predict carrier performance and what freight they’re best suited to move.

Like any good investment strategy, shippers should strive to choose the right logistics partner. When it comes to optimally serving transportation networks and mitigating risk, the best choice isn’t always the low-cost option.

Your best strategy for carrier management is to establish a balanced blend of partners to meet your freight transportation needs. Let’s explore some of the things you can do to achieve that blend. For a deeper look, open A Guide to Choosing the Right Freight Carrier, Large or Small.

Balance Logistics Carrier Partners to Avoid Risk

Determining the right truckload freight carrier mix is challenging. Many shippers don’t know what a healthy, balanced carrier portfolio looks like. Imbalances in carrier selection can put you at risk. And risk hurts shipper-carrier partnerships over the long run.

If you are a manufacturer or a retailer, your logistics carrier management team has a single mission: deliver goods to market to meet customer demand. Most transportation sourcing teams spend most of their time and energy on meeting operational requirements. Unprecedented levels of disruption in 2020 forced transportation teams to pivot on their truckload carrier sourcing.

Strategic carrier procurement varies from organization to organization. Some shippers rely on a pricing strategy, looking for low-cost options. Others leverage experienced carrier relationships built over time. Some have contingency plans, while others seek freight services through a request for quote (RFQ) process.

When vetting your carriers in the procurement process, evaluate how you allocate truckload freight to your partners. Your routing guide should be balanced and diverse. Carriers should demonstrate positive performance metrics.

Whatever the carrier strategy, using data to in your carrier performance management will help address inefficiencies and hidden costs in your network.

A Case for Long-Term Logistics Partnerships

Many full truckload freight shippers have a group of core carriers who handle most of their volume. Managing fewer relationships is easier, and it creates opportunity to forge strong carrier relationships and trust. On the other hand, this approach can create an inherent risk.

Your truckload shipping needs and the carrier networks are constantly evolving. Regardless of how close you and a carrier may be, when networks change you can lose alignment between your needs and your partner’s capabilities.

Long-term relationships are beneficial to both shippers and carriers because partners can align their logistics network patterns strategically. That is vital in times of disruption. But, like any supplier relationship, these agreements must be continuously evaluated.

And if you rush to award freight to low-cost network newcomers, you can add risk to your truckload shipping network.

When a low-cost carrier is selected without due diligence, it can be easy to overlook network inefficiencies. While longstanding carrier partners can shift out of network, brand new truckload freight capacity can come and go. Service tends to be the first area where your network performance suffers when you buy solely based on price.

Truckload Carrier Sourcing: Depend on Depth

When your volume on a lane increases suddenly, your existing full truckload freight carriers might not have the capacity to meet your increased demand. We saw that happen during the COVID-19 pandemic for truckload shipping of nondurable goods.

If your carrier is awarded freight from another shipper at a more profitable margin, it might not have the capacity when and where you need it. That’s why a solid routing guide requires depth. If tried-and-true relationships are based solely on past experience, shippers might be disappointed by surprise costs and poor service.

National and Regional Carrier Networks

Some large volume shippers believe that only national carriers are properly equipped to handle the size and scope of their full truckload freight demand.

This is an easy misconception when comparing your full-network map with that of a national carrier. If you drill down to the local level, however, you’ll find more logistics optimization opportunities.

National carriers might have a wider reach, but even if they service a certain lane, they might not fit your network.

Small to medium-sized carriers focused on regional service are often a good fit, especially if they’re active networks that surround a handful of key lanes. National carriers might be willing to send trucks to these areas – often at an added cost.

The best choice might be a small or medium-sized regional carrier that’s more familiar and available along these lanes. These carriers can more effectively manage your freight without the additional cost of non-compliance, deadheading or other inefficiencies.

Companies across North America are seeing transportation costs rise as a percentage of their total costs. That’s driving a need for many business leaders to closely oversee their transportation spending.

The Total Economic Impact of Managed Transportation: 251% ROI

Total Economic Impact of Managed Transportation: 251% ROI and freight cost savings, according to independent study commissioned by Transportation Insight.

Of course, this requires easily accessible visibility to all those transportation activities. It also takes a keen eye focused on opportunities to improve your current managed transportation performance – and your service to customers.

To help small and mid-sized businesses identify the best support services available in a volatile freight transportation environment, we commissioned Forrester Consulting to complete a Total Economic Impact™ study of our Managed Transportation solution.

Forrester’s analysis identified some of the benefits our managed transportation brought one customer during a three-year period:

  • Freight and cost mitigation savings over $1.4 million; average annual LTL savings and cost mitigation of more than 10 percent of the annual transportation budget
  • Personnel cost savings exceeding $840,000
  • Transparency into freight costs allowing stakeholders to see all transportation spending in one place
  • Better on-time delivery to fulfill our customer’s specific shipping requirements, control costs and protect end customer experience
  • Technology tools supporting needs for specific capacity and special handling situations

According to the study, “Transportation Insight Managed Transportation provides managers with transparency into their total spend and allows them to see managed transportation not as a cost center, but as a source of competitive advantage.”

Let’s unpack some of the reasons the Forrester Consulting Total Economic Impact (TEI) study determined our managed transportation solution can deliver a 251 percent return-on-investment and $1.6 million net present value over three years. For an abridged version of the case study we commissioned, open our infographic.

Transportation Insight’s Managed Transportation solution delivers our customer a 251% ROI and a net present value of $1.6 million with a payback of less than 6 months.
Source: The Total Economic Impact™ Of Transportation Insight Managed Transportation

Managed Transportation Customer Testimony

Using its TEI methodology, Forrester interviewed the senior vice president with a Transportation Insight customer that provides school supplies and educational resources to its clients. Forrester based a three-year financial analysis on this conversation.

As Forrester’s interview revealed, transportation visibility is important as our customer:

  • Compiles products from several inbound resources into large shipments for outbound delivery
  • Aligns delivery within specific schedules for on-site work crews that offload, install and remove packaging refuse
  • Requires specialized equipment or wide trailers and doors.

“We’re very watchful of freight costs as they continue to go through levels we never thought they would,” our managed transportation customer said according to Forrester. “… It’s always at the top of the list when we’re monitoring expenses, so it’s easy to understand the reason we need a third party to provide these services.”

Need-Focused Transportation Solution

Prior to our partnership, this organization worked with another third-party transportation service that utilized a broker model to send most freight tenders through one preferred carrier. According to our customer’s comments to Forrester, this left many decision-makers wondering whether their organization was getting the best price or quality of service.

Considering a change, the organization sought a managed transportation provider that:

  • Works with multiple carriers on a pure cost and quality-of-service basis
  • Offers technology that allows a better view into freight spend to support full understanding of the cost of goods sold (COGS)
  • Provides carriers capable of meeting specialized needs of its shipping and installation services
  • Identifies additional efficiencies to reduce transportation costs on an ongoing basis

Forrester’s TEI analyzed how Transportation Insight’s managed transportation solution has been meeting those needs for the past three years. Elements of our solution considered in the TEI include:

  • Named enterprise service team including single-focus account manager a customer can call any time
  • Consolidated electronic billing
  • Customer understanding and improvement of standard operating procedure for each customer
  • Continuous improvement projects
  • Network simulation and modeling
  • Proprietary tools including:
    • Insight Freight (our freight audit and payment portal)
    • Insight Fusion (our business intelligence portal providing business analytics and reporting for actionable insights)

Based on the customer interview and financial analysis, Forrester determined a total present value of our solution at $2.23 million over three years. Compared to a cost of $632,000 during that time, the TEI determined a $1.6 million net present value of our managed transportation solution to our client.

Consolidated three-year, risk-adjusted metrics detail total costs, total benefits and cumulative net benefits of Transportation Insight’s Managed Transportation solution
Source: The Total Economic Impact™ Of Transportation Insight Managed Transportation

Findings: Managed Transportation Provides Freight Savings, Cost Visibility

According to the TEI’s key findings, Transportation Insight’s managed transportation solution provides quantified and unquantified benefits. Both are significant.

Our proprietary technology and processes, combined with our expertise across the less-than-load and truckload transportation environments, achieved savings on freight costs and cost mitigation of more than $1.4 million.

Using our transportation management system (TMS) bid board functionality, our customers can route shipments with the optimal, low-cost carriers that we help identify through a rating system based on their feedback. We also helped this customer achieve the best transportation costs on inbound freight shipments from its vendors.

“We put our complete confidence in Transportation Insight to manage that process and provide us good carriers at the best market prices,” said our customer’s executive, according to the Forrester study.

Findings: Managed Transportation Amplifies Personnel Efficiencies

It can be hard to quantify the benefit of technology applications like our TMS and our business intelligence and reporting tools. Still, transparency to freight costs and the cost of goods sold, as well as on-time delivery adherence delivers benefits across an organization, often in ways that mitigate future financial impact.

That said, implementing and managing a technology-enabled freight solution does come at a cost. And creating internal workflow efficiencies with easy-to-access reporting and streamlined execution realizes hard-dollar savings.

Forrester’s TEI determined that our managed transportation solution helped our client realize a personnel savings value of $847,214 over three years. That benefit represents the cost of personnel if our customer tried to develop and maintain an in-house solution to replace all the technology services and reporting we provide.

“The information that is in (Insight) Fusion  can be combined with our company information, and we can look at margin by carrier, margin by customer, and margin by lane,” our customer told Forrester according to the TEI we commissioned. “I can’t even conceive of all the ways we can slice and dice [the information].”

Quantifying Benefits Against Cost

Transportation Insight commissioned a Total Economic Impact study of our managed transportation solution to help shippers understand the cost, benefit, flexibility and any risk factors associated with this service offering.

I believe that the costs and risk factors of our managed transportation solution are far outweighed by the benefits – and we scratched the surface of those benefits above. But I also believe that shippers should have a clear view to the costs they incur when partnering for a new beneficial solution.

Transportation Insight’s fees depend on the customer, and they are often a combination of fixed transactional fees, subscription fees and/or savings share. Within the context of this managed transportation analysis, Forrester Consulting identified our fees over the past three years.

According to the TEI study, the total benefit of our managed transportation solution for this customer over three years is $2.23 million, compared to $632,000 paid in fees to Transportation Insight during that time. In this case, those fees varied from year to year based, in part, on the freight volumes our customer shipped during the period. Forrester concludes the payback period on this cost is less than six months for this client.

Transportation Insight’s solution delivered our customer $2.23 million in total benefits, including $1 million in personnel savings and $1.6 million in freight cost savings during the three-year period.
Source: The Total Economic Impact™ Of Transportation Insight Managed Transportation

That is an important benchmark for small- and medium-sized businesses. We know our customers often compete with larger shippers that possess the scale and capital to invest in a more complex transportation management platform. So we are focused on providing hybrid-digital solutions that make transportation control and visibility accessible to a broader market.

That is translating to managed transportation solutions that we are implementing in a matter of weeks and delivering return for our customer almost immediately thereafter. For this shipper, based on the TEI analysis, that Year 1 return was an $811,305 net value.

To learn more about the benefits and cost analysis of our managed transportation solution, download the Forrester Consulting Total Economic Impact™ of Transportation Insight Managed Transportation study.

Do you have the change management process in place to support the move to a TMS?

Logistics Technology ROI Depends on Behavior Change

Leaders seeking ROI on investments in logistics technology must manage behavior changes across their organizational hierarchy.

The best logistics technology offers you the ability to standardize and automate business processes, optimize transportation procurement and improve communications across your network.

Accessing those outcomes is likely to require some level of change, and we all know change is rarely easy. Whether we are talking about a new flavor of coffee, a simple shift in routine or a new technology tool, humans are naturally resistant to “different.”

With the right approach to managing a change into a new technology environment, you can minimize the impact on your people and your partners. At the same time, you can maximize the ability of your TMS to implement your business goals, manage those goals, and enjoy the results that drive ROI across your business.

Let’s highlight aspects of our proven process that helps business executives manage change across key stakeholders in a TMS implementation: the leadership, operational management – and your business partners.

Start at the Top, Drive Technology Adoption

Top-down sponsorship is big in any project. When it comes to implementing new transportation management technology, it is even more important. Leadership must articulate and communicate an ROI message that conveys how logistics technology empowers the organization to achieve its business goals.

The work begins when you start exploring the right TMS for your business. Involve the team members who will use the tool day-to-day. These are the people doing the work, help them understand the benefits – a “why” behind the change that is relevant to them.

It gives you more control to help automate repeatable processes, and, in doing so, it gives your team back additional time to be more strategic in their activities.

The why for the organization: you are able to control your business strategy, define your strategy in business rules and put those rules in a system that allows you to execute based on those rules.

Once you communicate the “why,” seek the input for your team.

Your logistics users know the challenges they encounter regularly, and they know the capabilities that will make their jobs easier. Seek their feedback. This creates a sense of ownership in a tool you need them to adopt – instead of discord around a burden mandated for use.

Utilization is paramount. So, too, is standardization, which is a significant benefit of a TMS. Does every user at every location accomplish the same tasks with the same steps? If not, there may be a level of SOP you can capture and implement throughout the design of your operational rules utilized within your TMS.

Then, set expectations that the program will be monitored and measured, including successes and failures. Keep the line of communications open. Encourage users to voice their challenges and concerns. As you refine the technology based on input, you foster greater openness to change. That goes a long way toward making sure your system is easy to use, while you drive compliance in support of the “why.”

Along with compliance measurement comes downstream reporting that is critical to your executive communications with leadership stakeholders. Often when these leadership layers back a logistics technology investment, they do so expecting specific, quantitative return.

Level-set expectations early: ROI is coming, but not until information moving through the TMS arrives in reporting. This is what illustrates savings and transportation performance.

Least cost summary and other downstream reporting coming through your TMS helps measure compliance to routing rules set in place.]

Understand and Manage Technology Expectations

The tactical team is changing their work processes – from the old way to the new way – but functionally, not a lot should change for them. Built correctly around the right business processes, a TMS creates an immediate benefit for these users. Quick results ease a lot of change pain.

The work creates a different challenge for your operational managers. When theyenact the change they will need to have all those conversations about the “why,” earning adoption and compliance. The most challenging aspect is only having a partial adoption rate across your cross-functional user base.

If portions of your team do not adopt the tool, there is a risk for them to vocalize that to executive sponsorship. That is a big reason the users at this level must feel like they have a role in implementing the application. Creating a positive fact-based feedback loop to leadership based on the success of the program will be critical.

At the same time, your operational team must set expectations and bridge the gap to leadership by communicating downstream without creating pushback.

Operational leaders also must maintain alignment between tactical activities and strategic goals, where results are realized more slowly. While the first load booked in a TMS saves time for the tactical user, as I mentioned above, gathering information and building a data case for cost savings and efficiency gains is a longer process.

Just as a level-set for ROI timelines is important with leadership stakeholders, maintain a measure of patience with operational managers tasked with justifying the TMS. Once the best business rules are captured and applied into your organization, your technology platform will provide operational managers with reporting they need to demonstrate the value of the logistics technology to you.

Logistics of External Change: Carriers and Vendors

Be prepared to manage change with carriers and suppliers.

Your current transportation providers may raise red flags when a new party enters the conversation, especially if you enter a relationship with a technology partner. Naturally, they want to keep your business, and they may cite artificial concerns about lost relationships or diminished service.  

The reality is, using a TMS means you execute your carrier routing dynamically based on the best cost and service. These terms dictate the relationships your business should maintain.

Meanwhile, your suppliers and other vendors will need to start providing information into the system and give you a new layer of visibility. This introduces change for your partners and their daily process. Some are resistant. Some are not.

For both your carriers and your vendors, communication is important. It often requires a new process to convey expectations, including additional standardization, to all your partners.

Your vendors may need to sign in to the system to report receipt or shipment, using all the correct reference numbers. Do you communicate these new needs in your purchase order, through the TMS or a direct letter?

Your carriers may be required to input freight movement updates manually. If they do not, they will be accountable. How does that communication occur, and who manages it? While you want to limit the amount of effort required for external users, someone still has to own the compliance management.

Along with these conversations comes the compliance monitoring piece. Any TMS inputs require a level of measurement and compliance that will drive adoption – whether it is internally, or with your carriers and vendors. To maximize the value of TMS in your business, you not only need compliance within your four walls, but also with your carriers and vendors.

Minimize the Impact, Optimize the Logistics Technology

Logistics technology can deliver benefits to your business. Combining that technology with change management support from an expert partner helps you get to those benefits faster and easier.

We have a proven process that includes different levels of stakeholders throughout the implementation. We not only capture your business rules and initiate improvement where appropriate, but also we allow your teams to be part of the overall deployment of the TMS.

We work with you to identify the “why,” help you communicate that across your organization, and implement the compliance tools required to insure adoption. Validate your business case for TMS with customized reporting that combines information from your TMS with our independent freight audit and payment solutions to paint a clear picture of performance.

We also work with your supply chain partners to make sure that they are supporting your initiatives and your success. For your carrier partners, that means protecting the relationships that provide best cost/service. If you need additional providers, we foster those relationships, coordinate meet-and-greets, and make sure expectations are outlined clearly before the first load moves. Importantly, our executive relationship with transportation providers across North America provides a secondary point of escalation that produces faster results than a terminal manager or regional sales rep.

You face a disadvantage if you have a TMS, but lack relationships with your carrier base or have an audit function to validate the compliance of your contracted pricing and routing rules. Because Transportation Insight is able to provide the additional service offerings, and we are involved in supporting the success of your business, we can help shape and affect change management in all the areas related to the technology. And since we have worked across a multitude of customers and industries, we know the best practices that work in many domains – including yours.

Deploying logistics technology into your business does not have to be a huge undertaking. We can help you ease the change by fostering relationships at the foundation of your success. Contact us today to put the power of partnership behind the behavior changes that give you the most return from your TMS solution.

Transportation Insight’s logistics technology offering is backed by experts who help your organization implement best practices, manage behavioral change and give you time to focus on other priorities.
Understand how your business objectives set the pace for network design optimization.

Supply Chain Optimization through Visibility

Supply chain optimization depends on your ability to open up the many layers of transportation network visibility.

However, in the wake of a global pandemic where both short- and long-term effects are still emerging across shipping networks, there’s limited value in a rear-view look. This is especially true as North America continues to emerge from a stay-at-home state.

Organizations need a rear-view look, as well as in-depth awareness of current activity and the financial implications. Add contingency scenarios to requirements for companies pursuing supply chain optimization to support the “whack-a-mole” recovery where product demand and service requirements vary widely for customers across different geographies.

In the wake of pandemic, transportation managers determining how to optimize supply chain processes benefit significantly from end-to-end supply chain visibility. Solutions for achieving that visibility are widely available, but not all shipping network optimization solutions are equal. And not all visibility is the same. Your business objectives determine the level of visibility you need to make the best decisions.

What is Supply Chain Visibility?

Supply chain visibility means different things to different people. It covers everything from the physical “Where is my shipment?” to the virtual, like “Which customer/SKU combinations are profitable?” Depending on your role in an organization, you may be more concerned with the operational aspects of visibility or the more strategic. Either way, you need the information you need when you need it.

Beyond physical and virtual visibility separation, there’s the difference between real-time data and real-time access to data. When it comes to data, there is a lot of it, and it is coming from a growing diversity of sources – often separated within your organization by operational and functional silos.

An expanding list of technology-driven solutions offer varying degrees of visibility, and you can gain improved supply chain clarity through internal efforts and external partners. In weighing these options, it is important to consider:

  • Which solution is best for your business objectives?
  • How do you leverage information in business decisions?
  • What investments provides the greatest return?

Supply chain visibility can be complicated. It doesn’t have to be.

Peeling back layers of supply chain visibility, you gain an understanding of the information you need to plan and execute your day-to-day activities as well as adjust your strategy; react to changes that impact performance; and enhance your service to partners and customers.

Visibility and Supply Chain Optimization with Disruption Planning

The U.S. Armed Forces are a role model for logistics and supply chain optimization during crisis. Planning is critical to the military’s risk management focus. To quote General Dwight Eisenhower “Plans are useless, but planning is indispensable.” Companies have to be in a continuous planning mode, as we move through the recovery to account for these shifts in demand.

Effective supply chain planning, like military leadership during crisis, relies on visibility to a single source of information. When you have to go to multiple places to piece a story together, it takes time, and time can be costly.

Organizations that map their end-to-end supply chain create one foundational information source that can support business operations through disruption. As noted by Dr. Yossi Sheffi, director Massachusetts Institute of Technology Center for Transportation and Logistics, this requires supply chain mapping that goes beyond identifying company suppliers. It requires physical locations of supplier plants and warehouses.

A value stream map identifies all supply chain partners and activities to reduce waste, improve network design and optimize transportation cost and service.
Supply Chain Value Stream Map

“For large and complex enterprise with thousands of suppliers around the globe, mapping is a massive exercise that cannot be done on the fly,” Sheffi says.

Likewise, mapping cannot be accomplished without awareness to all activities across your supply chain. Your supply chain network and design optimization depends on your ability gain the visibility required to answer seven important transportation management questions.

Supply Chain Optimization: 7 Questions of Visibility

Peeling into the supply chain visibility layers – the physical (where is my shipment?) and virtual (which customer/SKU combinations are profitable?) – business leaders can uncover data evidence to drive decision-making around optimal supply chain network design.

Where and when?

At its most basic, supply chain visibility gives you physical location of a product in the supply chain. This can include where an inbound shipment is, where you have inventory, or when a shipment will arrive at a customer. When you have this type of visibility, you can make decisions around production scheduling, facility/customer alignment and proactive communication to customers for delivery expectations. Visibility allows the awareness needed to provide the highest level of customer service while maintaining cost control.

Where are the suppliers?

Understanding your suppliers’ geographic location is critical not only to executing a robust network design but also in mitigating risk. Understanding the production and shipping locations of your suppliers during a period of disruption allows you to execute contingency plans developed during modeling exercises.

For instance, when an overseas disruption affects a foreign supplier, maintaining a geographical awareness of primary supply chain partners is vital. Combine location information with advanced understanding of alternative sources and you can facilitate a rapid crisis response that protects customer experience and prevents other breaks in the supply chain.

Where are the customers?

Your customers and their demand drives everything about your supply chain. From the locations of your distribution centers to the shipping options available to meet customer service requirements, having a detailed understanding of the concentration of demand means you can work backwards to develop efficient and reliable options to keep them happy.

Take for example an emerging market in a different region of the country. Customer expectations for delivery are very high. Not providing a high level of service is not an option. Options exist to leverage expedited freight but may make the price point too high or erode the margin on the product. A partner warehouse may be a good option to position inventory to meet service levels without investing in owned brick and mortar.

Where is the inventory?

Your physical assets connect the vendor and customer locations. These assets allow you to position inventory to mitigate risk while providing the service customers expect. Having complete visibility to where and how much inventory you have is critical to making smart sourcing decisions:

  • From which location can I fulfill the order?
    • Is it cheaper to consolidate or split the order?
    • Can I drop ship?

Understanding all of the inventory options available enables you to leverage your vast web of connections throughout your supply and customer base to delight your customers.

Can I access all my data?

Your supply chain generates a tremendous amount of data. Accessing all of it is not easy, especially when you are working across multiple vendors, customer segments, product categories or transportation modes. Consolidating your information across disparate systems and sources is the first step toward gleaning actionable improvement opportunities from your supply chain data. The more access to information you have, the more it can impact your ability to achieve supply chain optimization – and affect your bottom line.

An expert partner with significant technology capabilities can compile disparate data in an accessible repository and provide it in personalized dashboards, as well as apply experience-inspired analysis. Accessing that analysis in the same platform as operational data and tactical execution activities is critical to supporting quick, evidence-based decision-making.

What is Cost to Serve?

For each product and customer, executive leadership needs to understand cost to serve, which reflects all the activities and costs incurred as movement and conversation occurs from vendors through your network out to the customer. Cost to serve metrics provide actionable information by enabling visibility into the profitability of individual customers and products, and finding a fulfillment configuration that balances service and margin.

By utilizing actionable data derived from historical shipment information and running what-if scenarios with regional data and characteristics, you can develop the most responsive and efficient supply chain that meets customer demand for the best cost.

Why is my cost going up/down?

Leveraging robust score cards can provide insight into the factors that are driving your financial performance. Not all drivers are completely controllable. You cannot make your customer order from a different location or change what they want to buy. There is an old adage “you cannot change how other people act, only how you react to them.” The same holds true for the supply chain. Develop plans to react to supplier performance and customer behavior to set up your company for success.

It is absolutely critical to have an unbiased party developing and interpreting the scorecards and information produced. You want objective viewpoints that highlight all options available to contend with dynamics in the marketplace. Not only do you want a view into your data but also what is going on within the market. In the modern environment, it is more critical than ever to leverage every bit of available information across the marketplace.

Combine Layers for Supply Chain Optimization

Physical visibility to shipment, service and costs can be accessed through very basic solutions that exist in the marketplace, some at low or no initial cost. Customization often requires additional investment, and visibility is black and white based on data made available by vendors, clients or carriers. A basic Transportation Management System provides tactical visibility to all of the connections in the supply chain, and it can enable cost savings.

Virtual visibility to all the activities that drive cost, service and reliability allows you to delve into the “what” and “why” around supply chain performance systematically and regularly. This requires investment in people, process and technology. The return on that investment: an enhanced ability to react to supply chain changes that impact performance. You also improve service to partners and customers.

Visibility does not just happen, and it is not free. Corporate alignment from the top down is required to achieve a complete solution. You want knowledgeable resources with broad experience to help guide you.

Open Mastering Your Supply Chain: Layers of Visibility to gain the end-to-end network clarity you need to optimize your supply chain. Read it today and uncover information you need to drive competitive advantage.

Truckload rates are continuing to increase in Q2 2021

Truckload Rates Pressured by Fuel, Capacity, Wages

Demand for flatbed equipment is high, and while it is declining for dry van and refrigerated, don’t expect truckload rates to follow.]

The news around climbing truckload rates is not all gloom and doom. A combination of factors across the broader domestic transportation marketplace will spur a drop in demand and relief on rates.

You can control some of those costs today by balancing procurement between spot market opportunities with short- and long-term contracts. At the same time, your strategy through the second quarter can position you for cost and service gains heading into 2022.

Let’s examine factors affecting truckload rates during the months ahead, and I will share some of the ways we help Transportation Insight clients respond in the current environment.

Truckload Demand Varies, Rates Remain High

Coming into 2021, truckload rates were at a peak. High, steady pricing will likely continue without many dips as we head through the growing season. Tighter capacity for produce and beverages coincides with increased summer highway travel, and we will see upward rate pressure until the July 4 holiday period when demand traditionally tapers off.

Average Truckload Rates, according to Morgan Stanley Research’s Freight Transportation Report on April 28, 2021.
National average spot and contract rates through April 27, 2021. Year-to-year comparisons (2021 in red) for reefer, dry van and flatbed. Source: Morgan Stanley Research, DAT Solutions.

That demand has not really decreased since the nation started coming out of pandemic lockdowns last summer. Retailers and manufacturers rushed to restock depleted inventories, and the holiday peak season added strain on capacity not just in the truckload marketplace, but also less-than-load and parcel.

Service issues and disruptions in LTL, intermodal and parcel are pushing more freight into the over-the-road world. Shippers facing accessorials (i.e. excessive length charges) or delivery delays with LTL can find benefit in multi-stop truckload shipments. We have customers where modal conversion to rail is usually worth considering, but not in this environment. That freight, too, is also competing for truckload capacity.

Until some of the capacity challenges in other modes work out, capacity pressure will continue, likely until July, when I expect rates will recede. Even if demand declines before that, as it has recently for refrigerated and dry van transportation, do not expect costs to drop. Flatbed demand is still going strong, and while it is down for those other equipment types, prices have not yet followed.

Truckload Freight Indices for Dry Van, Reefer and Flatbed, according to Morgan Stanley Research’s Freight Transportation Report on April 28, 2021
Truckload Freight Index measuring demand for services compared to supply through April 27, 2021. Year-to-year comparisons (2021 in red) for reefer, dry van and flatbed. Source: Morgan Stanley Research.

There are a few factors keeping these truckload rates elevated.

Truckload Carrier Costs, Fuel Prices Drive Up Rate-Per-Mile

Truckload rates have not dropped for dry van and refrigerated due, in part, to the capital expenses some carriers are enduring with new equipment purchases. Insurance premiums continue to go up for operators. Driver retention and training add new costs, and we have seen some dramatic increases in driver wages announced lately.

This all creates upward rate pressure from carriers who are trying to stay profitable.

Now fuel prices are returning to the conversation after a relatively quiet past couple of years. The average price of diesel fuel climbed 34.6 percent between November 2020 and May 10, according to the Energy Information Administration (EIA). We expect prices to plateau, but look for them to increase as the summer months bring more travel for produce growers, beverage producers and North America’s vacationing public. As of May 10, EIA predicts the 2021 average will be about $2.97 per gallon – a 3-cent increase compared to the April forecast. To put that in perspective, in 2020, the average was $2.55 per gallon.

National average diesel fuel prices through May 10, 2021 and forecast through December 2021. Average retail price per gallon was $3.18, up 4 cents from May 3, but still below the March 22 peak of $3.19. Source: U.S. Energy Information Administration.

This uptick will have a cost impact, even if it may not be readily apparent. If you are in the contract-pricing world, you will generally see the added fuel charges broken out, so you can report off of it. When you are in the spot market, however, all of that is lumped into one charge. That makes it hard to specify the fuel impact on spot rates, which are climbing to a higher premium than last year.

Relief is in Sight for Shipping Costs, Truckload Rates

As I mentioned, I think the broader transportation marketplace should experience some rate relief after the July 4 holiday. My colleagues in LTL and International transportation both expect conditions to steady somewhat in their modes by then. That will alleviate some of the added capacity pressure on full truckload transportation.

New equipment and drivers coming online will help, too. We saw Class 8 truck sales increase month-over-month and building throughout the second half of last year.

Orders for Class 8 Trucks spiked at the end of 2020 according to Morgan Stanley Research.
Total Class 8 Net Orders, reflecting a significant upturn in late 2020 into 2021. Source: ACT, Morgan Stanley Research.

Those vehicles should start hitting the road soon – even with many of those orders being delayed up to 60 Days. Driver training programs restarted after pandemic closures will fill more seats. The current rate environment will likely draw out-of-work drivers back into the job market, as well.

All these things coinciding with a demand drop should create a dip in truckload rates. That opens the door for you to explore strategic procurement opportunities, utilizing the benefits of the spot and contract markets.

Balancing Truckload Rates with Spot and Contract Procurement

In the current rate environment, especially with spot rates at a premium, we look strategically at truckload options for our clients.

For instance, we identify freight volume that can be moved from the less predictable spot market into a short-term contract. Even while short-term rates are elevated, they are still below spot rates. There is a chance to capture savings, and, more importantly, lock in rate consistency and capacity for our customers.

It also sets the stage for you to take advantage of the downward trend coming later in the year.

I am a big believer in maintaining your carrier partnerships – and not just when the conditions are in your favor as a shipper. Now is the time to work with your carriers to try to lock in pricing and capacity. Be flexible in accepting lane-by-lane increases in the current tight market. Short-term contracts can help – and they help solidify your relationship. When demand and rates decline, you are positioned to leverage your future volume for savings.

There is a natural temptation to flip everything back into spot procurement and catch rapid savings when the truckload rate swing occurs. Instead, consider putting a lower volume in the spot market, but also prepare for a larger network RFQ to capture a long-term contract at a price point lower than the short-term contracts yielded.

We help our customers achieve consistency with their carrier partners by locking in pricing where possible now. Then, as rate pressure alleviates, we support strategic conversations with your carriers to help you get market-competitive rates while maintaining the capacity commitments that support the service levels you need.

Control Costs in any Rate Environment

Our transportation management team constantly monitors market conditions to keep our customers informed about trends that affect their cost and service.

This proactive approach empowers shippers to quickly deploy strategic adjustments and control budget impacts of a volatile rate environment. For more transportation industry analysis, download our Q2 Industry Forecast.

Read it for actionable guidance that will support timely adjustments to your transportation management and keep your freight moving.

Every seller should have FOB terms defined to determine when the buyer accepts ownership of goods being shipped.

What Does FOB Mean?

Every seller should have FOB terms defined to determine when the buyer accepts ownership of goods being shipped.

What does FOB mean?

During a site visit with a prominent shipper a high-level purchasing person called it fob (rhyming with “bob”). That highlights a need to understand how this often-misused term is defined.

First of all, FOB – or F.O.B. – stands for Free On Board. It is the point in the supply chain where the seller relinquishes ownership, and the buyer accepts ownership of products purchased in a specific transaction. Every vendor/client relationship should have the FOB terms specified in their PO (that’s purchase order) purchase terms.

Along with purchase terms, shipping terms are equally as critical to your logistics carrier management best practices. Identifying both terms will determine ownership, risk, and logistics cost.

Here is more detail about FOB, beginning with common transportation terms you may encounter. We will also explore steps you can take to deal with FOB issues at your business.

FOB Terms to Know and Understand

Making sure the FOB terms suit your company’s needs is a powerful way to gain a competitive advantage in your day-to-day when shipping and accepting goods.

FOB Terms: FOB Origin, Freight Collect

“FOB Origin” refers to the legal fact that the buyer assumes title of the goods the moment the freight carrier picks up and signs the bill of lading (BOL) at the origin pick-up location.

“Freight Collect” refers to the legal fact that the buyer is responsible for all freight charges. The buyer also assumes all risks of transportation. That means they are responsible for filing claims in the case of loss or damage.

FOB Terms: FOB Origin, Freight Prepaid

“Origin” refers to the legal fact that buyer takes ownership at the time of carrier pickup.

“Freight Prepaid” refers to the legal fact that the seller accepts responsibility for all freight charges and freight claims exposure.

FOB Terms: FOB Destination, Freight Collect

“FOB Destination” refers to the legal fact that the seller retains title and control of the goods until they are delivered. The seller selects the carrier and is responsible for the risk of transportation and filing claims in case of loss or damage.

“Freight collect” refers to the legal fact that the buyer is responsible for the freight charges.

FOB Terms: FOB Destination, Freight Prepaid

“Destination” refers to the legal fact that the seller retains ownership until a claim-free delivery is affected.

“Freight prepaid” refers to the legal fact that the seller is responsible for all freight charges.

How can FOB Terms Affect Your Company?

Failure to properly manage and assess risk regarding purchase and transportation terms can affect any company’s bottom line. 

One distributor receives many shipments from various vendors on a daily basis. The policy on this company’s dock is that personnel refuse any order that has the slightest sign of damage. The hassle involved with filing a claim or ordering replacement parts for potential damages motivates this blanket policy to refuse these shipments.

When you think about legal liability, you need to know your FOB terms with vendors. In this case, the vendor with most refused shipments set “F.O.B. Origin, Freight Prepaid” terms. This meant that even though the vendor was paying the freight transportation cost, the distributor owned the freight from the time the shipment was tendered to the carrier. That puts responsibility of loss or damage with the receiver. By refusing these shipments, the distributor was returning something that it actually owned.

Fortunately for this distributor the vendor had agreed to accept the goods back into inventory,  even though they had no legal obligation. 

With this new awareness, the distributor rectified the problem by adjusting the purchase terms for future orders.

Having an advocate to review your agreements and explain your day-to-day business procedures to each of your vendors provides insight and clarity to all involved. Each department may not know what the other is doing in your organization, but your logistics provider can facilitate the best transition of goods for your company.

How Do You Handle FOB Issues?

A late shipment, a break down, a shipping slip filled out improperly – no matter what it is—a circumstance can arise to challenge the best working dynamic in logistics.

When an incident occurs in the shipping and receiving of goods, it usually causes some level of disruption. With that in mind, it is very important to have proper documentation, especially in regards to FOB terms.

If you are a shipper, make sure the FOB terms are clearly defined, understood and established to properly reflect the needs of the business relationship. You may want your customer to be FOB Origin so they own the goods when they leave your door. Alternately, you may want to own the goods until they are delivered intact. In fact, that is a great customer service selling point. The same holds true with companies that receive a lot of goods.

Knowledge is powerful, and having a great business relationship with your vendors can overcome multiple barriers. The personal relationship will provide flexibility for difficult situations.

What Does FOB Mean Around the World?

According to the International Chamber of Commerce (ICC) standard trade definitions known as Incoterms, FOB means Free on Board. In 2010, the ICC altered the definition to state the seller must load the goods on board the vessel nominated by the buyer.

The cost and risk are divided when the goods are actually on board of the vessel (this rule is new!). The seller is responsible for the goods to be cleared for export. The term is applicable for maritime and inland waterway transport only but NOT for multi-modal sea transport in containers.

The buyer must instruct the seller on the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. Free on Board is a term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments.

When developing any business agreement, to avoid a dispute, the buyer should seek to specify in the contract of sale what costs will be borne by the seller and what costs fall on the buyer.

According to the rules established by the ICC, where the buyer has given an indication of the loading point but later wants to change these instructions, the seller is not obliged to cover the expenses of transferring the goods to a new loading point, provided the seller has acted in line with the buyer´s first instructions and the buyer´s new notice arrived too late for the seller to comply without extra cost. It is essential in the contract to make it clear when ownership passes from the seller to the buyer.

Below are four different ways in which F.O.B. domestic terms and the international equivalent are used in a purchasing agreement.

North American domestic FOB terminology differs from terminology used in international shipping.

Each situation differs depending on place, parties, industry, applicable laws and relevant customs and usages. General guidance cannot be expected to determine an outcome in a dispute.

Having a trusted partner with international trade expertise can relieve the headaches and provide insight for future growth.