In 2014 the truckload market capacity was tighter than ever and finding capacity even amongst contracted carriers was challenging. The promise of guaranteed capacity goes out the window in times of disequilibrium for all but the largest shippers like Walmart and Costco. At the time, I was working for a multi-billion dollar food manufacturer and we had recently engaged consultants to run a long RFP process to procure capacity at very competitive rates. When it came time to book trucks, many of our carriers “didn’t have capacity in our area” as they filled their trucks with significantly higher spot rates.
Now the tides have turned with spot rates dipping well below contracted carrier rates. The more sophisticated shippers are going out to the spot market in search of big savings. According to DAT Solutions, spot market traffic rose 48% in February from the same period in 2016. Despite this trend the rates for dry van and reefer fell 5 cents and 9 cents respectively from the prior month. “The spread between van spot rates and van contract rates sits at roughly 30 cents per mile, which is close to the higher end of the historical range,” according to investment firm Stifel.
However, forgoing contracted carriers can be a labor intensive process involving posting loads and negotiating pricing and terms with many new carriers. Not every shipper has the luxury of extra logistics resources sitting around to capitalize on this trend and it is the reason why so many shippers choose to go through RFP processes and deal with a select set of carriers in the first place.
But with several startups looking to disrupt the antiquated established ways of doing business, getting on-demand spot market rates might be easier than one thinks. Not only has the process of going out to spot been significantly simplified, it can yield better service levels and better visibility than contacted carriers. Furthermore, spot pricing tends to be lower than contracted rates for most months out of a year, which is counter-intuitive for some shippers contracting out large volumes of business.
When we founded BridgeHaul, our intent was to automate the truckload procurement process from end-to-end, provide full pricing transparency, and enable real-time asset tracking of any load from any carrier. It just so happened to be perfect timing where the demand for the spot market was at a 5 year high when we recently launched. Our customers have been able to procure trucks at spot market rates with a single click of a button. Everything is automated from rate quotes, to electronic bill of lading, to up to the minute ETAs which is more than they can say for their existing carrier partners.
Technology is finally making it easier than ever to forgo RFPs altogether and focus on the more strategic elements of supply chain management. As Uber and Amazon look to target this segment of the market, it is seems clear that the trend towards technology and automation will continue. It’s difficult to say what impact it will have on the contract vs spot spread, but for now it certainly has made the spot a viable permanent alternative to contracting with carriers.