I recently laid my hands on an interesting whitepaper co-authored by MIT Center of Transportation & Logistics and TMC, a division of C.H. Robinson. Crux of the paper was to evaluate if higher truckload rates result in better carrier performance. Authors of this paper have done extensive research collecting data for 27 months (2013 – Q1 2015) from TMC’s execution systems. Data included tender information from 40 shippers and 963 carriers, with more than 1.7 million shipment tenders to secure the movement of 807,662 shipments. Carrier performance was measured via on time pickup (OTP), on time delivery (OTD), and tender acceptance ratio (i.e. accepted loads to load tenders).
Following are the findings of this analysis:
Paying more does not result in better OTP percentage.
Paying significantly above market price does not provide notable improvement in OTD.
When shippers paid below market average, there was a clear decrease in OTD performance.
No correlation was found between tender acceptance ratios and carrier pricing in a lane but tender acceptance ratios of carriers rose when shippers offered consistent load volumes on a particular lane.
When shippers tendered at least one load per week to a carrier in a given lane they got better rates. Such shippers who were highly consistent with their freight by tendering at least one load per week on a lane more than 80 percent of the time paid only a slight premium of $10 per load.
Shippers who are highly inconsistent in their tenders in a lane over the course of a year (i.e. tendering less than one load per week more than 80 percent of the time) paid about $170 premium per load.
Lane aggregation, via combining low volume point-to-point lanes, helps improve freight consistency.
What Does This Mean for Carriers?
If smart shippers are seeing the same trends as above and operating accordingly, carriers need to optimize their networks to benefit from shippers’ commitment to freight consistency. Shippers’ freight consistency allows carriers to develop a sustainable network plan and increase utilization of their fleet. Research in lane aggregation supports this finding, showing that when lanes are aggregated—when low volume lanes are bundled within larger origin-destination pairs—shippers see better tender acceptance and more attractive pricing. By using lane aggregation carriers can achieve higher tender acceptance ratios at attractive rates and support higher demand for capacity. They can accomplish it by evaluating the fit for new lanes with existing lanes in their network to create closed loop trips and increase their fleet utilization. Some of the new lanes by themselves may be unprofitable but could fit well within a carrier’s network to keep their trucks moving. Overall, it’s a win-win situation as shippers benefit from lower pricing and carriers get better utilization of their fleet.
But do carriers have the right tools to conduct network analysis based on lanes or loads either for one shipper or across multiple shippers? In our interactions with some of the top twenty truckload carriers in the country we noted that they rely on the concept of continuous move planning to complete this analysis. Continuous move planning involves evaluating a given set of lanes or loads for continuous move opportunities within a set of operating constraints wherein a continuous move is a group of loads (point-to-point moves) linked together to form a closed loop trip. Though all the carriers we spoke to have robust Transportation Management System (TMS) platforms that include some or most of the continuous move planning capability, they preferred to use a tool that is specifically built to support this planning which brings us to our Continuous Move Planner (CMP)® tool.
CMP is the only tool in the trucking software industry that is built exclusively to optimize truckload networks. Turnaround time for optimizing/converting truckloads to continuous moves and determining corresponding fleet requirement is only a matter of minutes. Using CMP, some of our customers were able to respond to complex truckload bids within a week which usually took them over a month with alternate methods and/or tools. Launched in 2000 CMP has evolved to support several use cases for truckload carriers including building continuous moves, identifying domicile locations for a network of lanes, evaluating opportunities for dedicated fleet deployment, fleet size estimation, and identifying markets to serve or get out of, to name a few.
With seven of the top twenty (based on 2015 revenue) truckload carriers already on board with CMP and contributing to its maturity, we continue to see CMP’s positive impact on our customers’ bottom lines.