Last week I had a lively discussion with several colleagues about what’s going on in the freight markets and the economy. One interesting topic we talked about was how the current freight recession is impacting rate structures.
Of course, whenever TL rates are plunging and LTL rates are up in the air, invariably shippers start to ask: “Should we be conducting a transportation sourcing event?” The answer to that question is: “It depends.” We mention this because there is in fact a “right way” and a “wrong way” to conduct transportation sourcing events.
Conducting a sourcing event the “right way” depends on having accurate data, the time to conduct the bid and an in-depth understanding of how market conditions will impact which carriers get invited to participate in your sourcing event. With these thoughts in mind, here are some important tips to consider BEFORE you take your freight out to bid.
First, when considering which carriers to include in your sourcing event, ask this important question: How will my freight fit within this particular carrier’s network? Since the carriers are continually changing their networks to maximize their return on assets, their networks may look much different than they did when you conducted your last sourcing event.
For example, two years ago, several carriers launched or expanded their networks to meet a major surge in demand. Today, some carriers are aligning their networks to reflect the drop in demand due to the freight recession. For example, FedEx recently announced restructuring their network to cut costs by $4 billion. And Yellow is continuing to implement their “One Yellow” initiative which will consolidate their network and eliminate some terminals. That is why it's important to know how your freight fits into different networks.
Second, what are the critical issues affecting your carriers? We recommend that shippers use TranzAct’s Carrier Yield Test and see how the carriers view their business before they launch their bids.
Finally, it’s important to learn about the issues that carriers are anticipating in the next 6-12 months. It also helps to consider other items that could affect your rates. For example, carriers are experiencing sizable increases in insurance and liability coverage costs. They are also having to contend with the higher driver wage structure and lower freight demand scenario that challenges their operations.
At TranzAct we have a wealth of expertise and experience in helping shippers conduct great sourcing events that produce outstanding results. If you are interested in learning more about conducting sourcing events the “right way,” we encourage you to get in touch.
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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