I’m an ex-academic, but I’m not a fan of most of the research produced by supply chain or industrial engineering departments. Most of it is just not relevant to supply chain professionals. But there is an article that MIT published called Analysis of Truckload Prices and Rejection Rates that was an exception.
The researcher, Yoo Jin Kim, partnered with the TMC division of C.H. Robinson. TMC provides managed transportation services and transportation management systems for shippers. The author was able to look at tender and acceptance rates, and rates paid, of the TMC managed service customer base for the previous five years. The dataset covered 40 TMC customers, some of whom were very large shippers.
Here are some of the takeaways from the literature review section:
- For most shippers, most of their load volume occurs on relatively few lanes, while the majority of lanes have little volume. For low volume lanes, canny shippers tend to use a loose definition of lanes, like state to state, in order to aggregate lane volume and make the volumes more attractive to carriers.
- When shippers have a longer tender lead time, in other words when they give carriers more advance warning of a shipment, they can reduce both price and the number of tender rejections.
Here are some takeaways from the research:
- Shippers made 1.4 tenders on average for every tender accepted.
- Tender rejections are linked to the length of the line haul. They bump up considerably at the 100 mile mark. Presumably, this is because carriers are willing to have empty backhauls for routes of up to 100 miles. Beyond that distance, the carrier is looking for a backhaul load, which can’t always be found.
- When tenders are rejected, they pay on average 15 percent more to cover that load! The deeper shippers have to go in their route guide, the more they have to pay. If you have to go down to the third alternative to the primary carrier, on average you pay about 25 percent more.
While this research was published last year, it is becomingly increasingly pertinent. The North American transportation market is also going through some cataclysmic changes. What is keeping transportation professionals up at night are capacity issues, particularly in the long haul truckload market. These capacity issues will take two to three years to resolve – driver shortages, equipment sell offs, and tougher regulation make this the toughest market many shippers have seen in their lifetimes.
Because of this tight market, shippers should expect their tender rejection rate to go up. Most managers of transportation departments should expect that they will go over budget this year. It is never fun to explain that to your boss!