Benchmarking Data Supports Pricing Decisions
Q: How can shippers and logistics service providers (LSPs) ensure that their business methods and metrics conform to best practices for the industry?
Schrader: The best transportation companies identify and measure their key performance indicators and strive for continuous improvement. Most companies have done a good job using their transportation management system or enterprise resource planning software to measure performance versus prior years and against their current budget. However, most companies aren’t taking the next step: measuring their performance against the market, and their peers and/or competitors. Measuring against industry benchmark data allows you to identify areas for improving transportation spend.
Q: How can a shipper or LSP use industry benchmarks to improve internal decision-making?
Schrader: Transportation companies and shippers are painfully aware of cost increases and capacity constraints at the macro level. The impact on the business can be very specific to a market or a region, however, and can change overnight. Suddenly, all your pricing assumptions are wrong.
Luckily, benchmarking data and tools are available now to support pricing decisions. For example, TransCore’s Truckload Rate Index includes both contract and spot market rates. Contract rates are the rates shippers pay to the carrier, while spot rates are the broker “buy” rates. When the market is in equilibrium, spot market “buy” rates are typically 15 percent lower than contract rates for comparable lanes and equipment. Right now, the gap is narrower—about four percent in many markets. In February 2011, 20 percent of the top 7,000 lanes showed spot market rates for vans that exceeded contract rates, a further indication of capacity constraints in those markets.
Having both rates readily available offers the shipper and LSP the opportunity to determine the least-cost method of moving truckload freight, representing an arbitrage opportunity to reduce transportation spend. Pricing analysts or dispatchers can research the prevailing rates and negotiate with confidence to secure trucks.
Q: What trends do you see emerging in trucking freight in 2011?
Schrader: Transcore’s DAT Network showed a 131-percent increase in load availability in 2010, compared to 2009, followed by record-breaking freight volume in our spot market in January and February 2011. Intermediaries moved 10 percent more loads in 2010 than they did in 2009, according to our recent Broker Benchmark Survey. But the American Trucking Associations’ Truck Tonnage Index reported only a five-percent increase, year on year. So truckload freight volume on the spot market appears to be growing faster than the overall industry.
All indications are that the economy will continue to recover, and freight volume will increase. Couple this with tightening capacity, and we expect rates to continue to rise in the second quarter and throughout 2011.