In transportation and supply chain, we’ve seen a great deal of innovation relating to spot-market solutions: digital brokerage, on-demand freight systems, optimized load boards, and the like. And while many of these tools cater to very real challenges that shippers encounter from day to day, few contribute to a more enduring transportation strategy.
This year has provided a dramatic case study in supply-chain disruption. In response, the ad hoc capacity approach has become central to strategic conversations. While an effective and convenient spot market will always be necessary to secure capacity in unexpected circumstances, in recent years this focus has become imbalanced.
Truckload freight market spend is roughly $360 billion, and anywhere from 70-80% of that is made up of contract freight spend. While most operational freight spend is allocated toward contracts, startups and new technology focus almost solely on spot-market applications. The logistics industry has funneled billions in venture capital into digitalizing spot market and short-term freight solutions. The digital brokerage market alone has been valued at over $8.5 billion and is projected to grow by over 30% in the coming years.
If freight contracts make up the lion’s share of a transportation network, why is the industry disproportionately focusing its strategic energy on filling the gaps of routing guides? Why are we putting so much weight behind Band-Aids, when the root cause of a broken system could be attended to?
Short-term capacity solutions all serve important functions in the transportation ecosystem, but as disruption becomes a pattern, it’s time for shippers to take a new approach.
The occasional capacity misalignment is a cost of doing business, but disruptions that systemically occur over time are costly, no matter how high-tech the spot market has become. The market is sorely missing solutions that address and mitigate capacity failures that become the norm — and this should be done at the contract level.
Stronger routing guides and more data-driven carrier selection processes are a step in the right direction, but this still leaves you at the mercy of the annual RFP and all its limitations. The real solution to building a more resilient freight network is to break your RFP cadence out of the annual mold, and start considering how your freight needs evolve on a lane-by-lane, day-by-day basis.
To diminish a shipper’s reliance on expensive spot-market applications, targeted and ongoing freight re-contracting opens new opportunities to adapt to the market.
When shippers make incremental improvements to routing guides as issues arise or opportunities come to the forefront, they eliminate the massive, disruptive, full-network RFP that the industry has become accustomed to. This leads to more systemic stability for both shippers and carriers, and reserves the helpful (albeit expensive) spot-market solutions for what they do best: servicing last-minute freight needs.
More optimized freight contracts ensure that shippers’ freight needs are met, and carrier networks remain intact over time.
As new spot-market players continue to innovate and investments pour in, shippers should remember that true success comes from a contract freight network that operates as optimally as possible.
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