We have seen shippers modify manufacturing facilities to create PPE for front line workers and food shippers donate millions of dollars to people in need, and we even helped facilitate capacity sharing among shippers who are experiencing coinciding volume changes. The supply chain is proving its robust ability to adapt, but the annual RFP process is one legacy practice that has yet to catch up to the high-tech, data-rich reality of 2020’s marketplace.
Though the circumstances thus far in 2020 may feel novel, they are actually a dramatic illustration of a much more common systemic failure in the way we manage supply chain transportation. For the professionals working in supply chain, what do all these deviations from plan mean for strategies and costs moving forward?
Most of these changes were a direct result of the global outbreak of COVID-19. From the closure of manufacturing facilities to safer at home orders across U.S. markets, the very nature of consumers’ relationships with goods has shifted throughout the first half of the year.
The ebb and flow of this relationship is quite simple, despite the complexities surrounding it. Consumers purchased essentials in mass quantities at the onset of the pandemic, decreasing spending for non-essential and durable goods in a significant way. Over time, these behaviors will slowly trickle back to normal levels, but not without some delay.
Consider Breakthrough client shipment volume by industry—which represents over 60,000 daily freight shipments across North America. When you compare volumes in 2020 to 2019, the degree of disruption becomes much more apparent, with durable goods falling off as much as 40% at its trough, while nondurable goods surged early on and remain above prior year levels.
The Transportation Ecosystem
In terms of transportation strategies, what these unforeseen ebbs and flows resulted in was a mess for procurement teams. Whether volume doubled expectations, or halved, the movement of trucks and goods looked vastly different than was planned for in the annual RFP for shippers across industries.
The result can be identified in a surge in spot market activity, a softer capacity environment, and decrease in service from both shippers and carriers. Shippers who experienced a dip in volume didn’t have freight to honor contracts, and those with an influx scrambled to find tractors to move their goods.
Based on a study done on a cohort of Breakthrough shipper clients, shippers saw some degree of diminished carrier compliance as early as a few days after their routing guide went live. This trend was exacerbated the further out the analysis went, with an average of 3% 10 weeks after go-live and an average of 15% 45 weeks after go-live. The longer a shipper waits to recontract a lane, the more at risk that lane becomes to failure of service, and as a result, incurred costs.
When monumental shifts occur across both shipper and carrier networks, it will quickly render the results of a shipper’s RFP useless. New economic conditions will influence rates, carriers have moved tractors to new areas of operation, and volume looks vastly different for a shipper. But this challenge is not isolated to historic events. It is happening every day across transportation strategies.
A Deeper Problem With Procurement
Under typical planning strategies, capacity is awarded by lane on an annual basis through the arduous RFP process. The limitations of the factors that are most often considered to make capacity sourcing decisions include:
Under even the most precise and well-executed circumstances, an isolated RFP creates a routing guide that meets the estimated criteria of your network the day it is created. But freight dynamics shift, market events can emerge at the drop of a hat, and even minutes after your routing guide goes live the parameters surrounding your freight strategy are already changing. Networks are ever evolving, and the legacy RFP process tries to fit a stagnant model into the highly-dynamic realities of moving goods to market. Shippers need a more flexible approach to contract freight solutions that re-evaluates performance, price, and supply and demand along a lane continuously.
As you can imagine, the routing guide created for fiscal year 2020—which was based on historic data and market conditions at the time, as we outlined above—couldn’t have predicted the events we have seen unfold. No matter how much planning and care went in on the front end, that plan no longer meets the needs of today’s freight, and it likely won’t restore accuracy in the future. For lanes that meet this criteria, shippers cannot afford to wait to address these issues until their next RFP cadence.
Disruptions occur across the transportation landscape every day, to varying degrees. They may not be instigated by a global pandemic, but shippers experience unplanned freight needs, carriers move out of expected network, and over time, those systemic failures should be addressed on a more intuitive and data-informed cadence. Contract freight strategies need to be as agile and dynamic as the goods they are moving.
The value of flexible contract freight solutions that continuously evolve your routing guide exist in times of great disruption as well as in times of stability.
Heather Mueller is chief operating officer at Breakthrough.
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