In the trucking business, market volatility is part of the terrain. But in recent years, fluctuations in supply and demand seem to have become more erratic. So how can shippers use transportation management system (TMS) technology to help deal with these market swings?
A number of forces, both manmade and natural, feed the market’s ups and downs. As Jason Craig relates in his Transportfolio blog post Turning of the Screw: The Pressure Supply Chains are Under, these stresses and strains have been building up for some time.
The hours of service regulations that went into effect in July 2013 “tightened the screw” on market capacity. Driver shortage issues add to the pressure, as did the upswing in carrier bankruptcies in late 2013 due to adverse economic conditions.
Weather is surely at the top of the natural forces list. Having just endured a harsh winter, everyone has a bad weather story to tell. The fall out for the transportation industry includes tighter capacity due to equipment positioning problems, shorter lead times as schedules are disrupted, inbound delays, and higher accessorials. For more on the impact of the weather see the Logistics Viewpoints post Managing Weather’s Impact on Transportation Capacity and Costs by Mark Derks.
Jason Craig points out in his post that capacity volatility always leads to rate volatility. As the market’s unpredictability increases, shippers need to work more closely with their service providers to smooth out the peaks and valleys. They can also look to their TMS solutions – whether in-house or part of a managed services package – to help them manage changeable markets.
TMS scorecarding is one tool you can use to handle the market’s ebb and flow.
Scorecards present a clearer picture of carrier performance. For example, what are providers’ load acceptance rates and charges and how do these parameters deviate from their contractual obligations? The information is updated regularly, enabling you to identify anomalies and trends. Also, the reliability of the information is likely to be improved if the TMS provider is responsible for the data inputs rather than carriers’ self-reporting systems.
This granular picture of how service providers are performing puts you ahead of the game when facing extreme market movements. You can use the lead indicators and analyses derived from the scorecards to develop contingency plans or to help you dig out of a capacity hole when the market takes an unexpected turn. Perhaps the data shows that a core carrier is rejecting loads in favor of more profitable business in a tight market, even though it is contractually committed to moving your freight. How can you improve the carrier’s compliance rate or find alternatives?
Another option is deploying a TMS to improve the effectiveness of a spot bid strategy.
In general, shippers shy away from more costly spot capacity. However, in a difficult market where you are looking for carriers at the last minute, this alternative might be the best, or even the only, solution. Spot bids allow you to engage in competitive bidding for exception freight, rather than having to rely solely on one carrier to move the loads.
Knowing exactly how this option fits into your overall transportation strategy improves its effectiveness.
The TMS solution can shed light on why and when you are resorting to the spot market. For example, are your lead times unrealistic? Is a carrier’s network ill-suited to your business? Or are you simply expecting too much from a carrier, forcing it into high rejection rates? Another possibility is that lead times are overly variable because of communications disconnects.
Nobody knows how freight markets will track in the future. However, given factors such as climate change and the likelihood of political upheavals, it’s reasonable to assume that high levels of volatility are here to stay. Used properly, TMS technology can make it easier to ride these twists and turns and enable you to buy truck capacity more effectively in the market.
Glenn Koepke — General Manager, Americas, works closely with a team of General Managers globally responsible for customer management, supply chain excellence, employee development and continuous process improvement for customers located in North America and South America. Glenn is also responsible for TMC’s Operational Excellence and Supply Chain Consulting teams. Prior to his current role, Glenn spent four years in Amsterdam, Netherlands opening TMC’s EMEA Global Control Tower® and was responsible for extending its service portfolio to shippers in Europe, Middle East and Africa. Glenn has traveled the world implementing Managed TMS® solutions for complex global shippers. If you would like to contact or discuss this subject further with the author you are welcome to email Glenn Koepke at Glenn.Koepke@mytmc.com.