How Transportation and Procurement Can Improve Spend

Steve RaetzNegotiating truckload rates has always been a key element to transportation relationships and budgeting—and it always will be. But lately, I’ve seen what feels like a trend: corporate procurement leaders either assuming control of truckload negotiations or partnering with transportation teams to conduct negotiations. Procurement professionals may not have transportation operations experience, so they may not realize that employing certain strategies can produce far better results during negotiations. Here are some market and research insights that could help in these discussions at your company and bring more stability to trucking service and price, regardless of the economic and supply/demand cycle.

As the procurement and transportation teams come together with service providers, I recommend a blended approach to securing a strong market position. Yes, you must negotiate. But you can also understand current demographics of the for-hire truckload carrier community and learn more about strategies that help get the best service and price from truckload carriers.

First, consider the market demographics as part of your long-term strategy.

  • Supply and demand tension has lessened in today’s environment, as compared to recent history.
  • Fleet utilization, according to FTR Associates, is still between 95% and 96%.
  • There is lower market elasticity. While capacity feels a bit plentiful at the moment, trucks are at a high level of utilization. That means it may not take much disruption to impact how well transportation plans perform.
  • Understand carrier market demographics. Using leverage on a few carriers may not yield the desired outcome in this market. Over half of the for-hire truckload capacity in the United States is held by carriers with 50 or fewer tractors. Smaller carriers hold the rest. Companies may not be able to establish relationships with dozens of smaller carriers. But they can work with third party logistics providers (3PLs) as part of their strategy to aggregate small carrier capacity and add a nimble, cost-effective elasticity that is valuable to have in a balanced market to effectively support lumpy demand.

Beyond the art of negotiation, there are strategies that can improve the odds that the procurement exercise will lead to a routing guide that supports your transportation budget. We’ve been part of research by transportation experts at universities where real shipment data is analyzed across a portfolio of shippers. These findings can help inform your transportation procurement planning.

  • Aggregate low volume lanes. Clustering like low volume lanes into packages introduces higher volume corridors and more predictable demand for carriers.1
  • Conduct annual procurement cycles. When companies host formal, annual procurement events, it results in fresh rates and higher acceptance of shipment tenders.2
  • Offer 2 to 3 days of lead time on shipment tenders. Most shippers can support this. It gives the carrier enough time to optimize their driver and asset network so that they can accept the shipment tender.3
  • Reduce dwell time. Shipping and receiving locations that turn trucks the fastest tend to see higher acceptance of their first shipment tender.4

Research shows that when the first carrier rejects a shipment tender, secondary and tertiary carriers accept the tender, typically at higher cost. This is one of the key drivers we have found when transportation spending exceeds budget or plan. When you use the strategies above, you can make your freight more attractive to carriers, increase tender acceptance, and stay truer to the pricing and services you’re expecting as part of your transportation procurement plan.

Steve Raetz, Dir. Research and Market Intelligence, joined C.H. Robinson in 1989 and currently focuses on areas contributing to the evolution of C.H. Robinson’s supply chain value proposition to its clients, supporting client sales and relationship strategies through transportation market insights and academic research. Previously he led CHR’s consulting team, was General Manager of Minneapolis National Accounts and served as the Southeast Regional Transportation Manager for the Quaker Oats Co. Steve also is a member of advisory boards with three universities supply chain programs.

1 Julia Collins, Ryan Quinlan, Kevin McCarthy, and Chris Brady, “Aggregate Low Volume Lanes, Lower Transportation Costs,” MIT’s MLOG Program, C.H. Robinson, and TMC.

2 Bobby Martens, Yoshinori Suzuki, Kevin McCarthy, Chris Brady, and Steve Raetz, “Stale Rates Research: Benefits of Frequent Transportation Bids,” Iowa State University, C.H. Robinson, and TMC.

3 Erik Caldwell, Bryan Fisher, Kevin McCarthy, and Chris Brady, “Increase Lead Time, Decrease Costs,” MIT’s MLOG Program, C.H. Robinson, and TMC.

4 Bobby Martens, Kevin McCarthy, Steve Raetz, and Chris Brady, “Do ‘Favored Shippers’ Really Receive Better Pricing and Service?” Iowa State University, C.H. Robinson, and TMC.

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