Winning in a Contract Market
Freight market volatility keeps us on our toes, and we can expect that to continue. Many carriers are shifting their focus from spot to contract freight, which creates a fantastic opportunity for shippers to optimize their supply chain by adapting their carrier strategy. Here are some proven practices for doing so.
Take the first step by assessing your freight needs and business goals. If you move high volumes of relatively low-risk freight and need to cut short-term costs, consider tactics like renegotiating contracts or siphoning loads to the spot market.
But remember, when the market inevitably flips and spot rates spike, this approach creates challenges to establishing profitable contracts with the carriers you steer away from now.
Alternatively, if you move premium, perishable, or otherwise sensitive products, building long-term partnerships within your carrier network will help you reap the quality, cost, and service benefits that come with them. Although this may be a more tedious and complex approach, it will likely be the most advantageous for your business in the long run.
The complexity inherent in most supply chains demands a blend of both strategies, so harness this moment to identify the right mix for your business. Although it’s wise to maintain a fluid freight management approach, I advocate building long-term carrier partnerships.
I’ve seen carriers reward shippers that honor contracts in tight markets with exceptional rates and service when demand swings again. I recommend you play the long game by maximizing your existing contracts and strengthening your carrier relationships to position yourself for future success.
Playing the Long Game
Only you understand the unique needs of your business, but these tactics can help both transactional and partner shippers adapt to market volatility and win the long game.
- Patience pays dividends. Contract rates likely will remain higher than spot rates until peak season. Push your carriers to over-deliver on service, and share your plans with them so they can prepare to offer lower rates and high service levels to stay competitive.You can simultaneously siphon contract freight to your spot arena to reap savings and drive competition. This strategy sets up discerning shippers for whatever the future brings.
- Don’t rush to RFP. If you just wrapped up an RFP, wait until peak season to rebid or renegotiate to ensure you get the best deal while contract rates continue to dip in your favor.
- Connect with carriers. If you pay premium contract rates, connect with your carriers and see what more they can offer while respectfully reminding them that a rebid might be on the horizon. Don’t settle for lower rates either—challenge carriers to find ways to deliver additional value for your business.
- Window shop: Proactive, service-oriented carriers may try to get ahead of potential rebids by offering lower rates; take the meeting, but hold out if you anticipate even better rates coming with peak season.
- Lean on your broker. Smart brokers strategically straddle the spot and the contract market so they can find low-price options that will drive down your overall network rates. Asset-based carriers also can do this—especially if they don’t factor in fuel—but they may take longer and provide fewer options.
The bottom line: Don’t fear this—or any—market shift. Instead, recognize market shifts for what they truly are—an opportunity to improve your current position and fortify for the future.