Core Carriers or Load Boards? Striking the Right Balance
In today’s freight climate, finding capacity via core carriers or load boards are both solid options. Here’s how to weigh the advantages of using core carriers against the necessity of turning to load boards and the spot market.
For their considerable shipping needs in the United States, ZF, a Germany-based global automotive supplier with a large presence in North America relies heavily on a core set of contract carriers to transport their goods over the road. Leaning on core carriers provides an array of benefits.
“Our full truckload sourcing is centered around core carriers to stabilize costs, enabling us to manage freight to our targets,” says Nichole Felton, vice president, materials management, Americas for ZF.
“Core carriers are also connected to our transportation management system (TMS), providing valuable information to continuously develop and design our network to keep up with the changing environment,” she adds. “Finally, core carriers are connected to our billing process, minimizing manual efforts to audit and pay the carrier.”
Large shippers such as ZF depend on core—or contract—carriers for the bulk of their transportation needs. However, core carriers rarely can handle all of a shipper’s freight volume. For a range of reasons, shippers occasionally must turn to the spot market and load boards to get their products and raw materials where they need to go.
For that reason, most large shippers employ a hybrid approach that prioritizes a set of core carriers while integrating load boards occasionally either out of necessity or strategy. Smaller shippers, tend to depend more heavily on the spot market since they do not have the volumes to attract large core carriers.
One Solution Does Not Fit All
A hybrid approach of using both load boards and core carriers is necessary for many shippers because “one solution does not fit all freight,” Felton says.
“The market is in continual flux and being able to flex between each solution will enable you to get the best results to meet shipment requirements,” she says. “Your freight requirements will continually evolve, which will lead you to require services outside of your contracts. To work in the hybrid approach, a solid process and key triggers for moving freight between core carriers and load boards is necessary.”
The challenge for shippers is to find the optimal balance between core carriers and the spot market and to avoid disruptions in service and high rates for individual moves on the spot market.
“Shippers should carefully consider and understand the role of load boards in their overall strategy,” recommends Greg Price, founder and CEO of Shipwell, a Texas-based provider of transportation technology solutions, including a TMS and private load board.
Here are some key considerations for striking that balance.
Large-volume moves vs. specialty moves. Shippers are determined to ensure large-volume moves go to core carriers, says Dean Croke, principal analyst, DAT Freight and Analytics, a Colorado-based freight exchange service that operates a load board.
If they are forced to turn to the spot market in a crunch, he says, the price will be high and it will be difficult to find carriers for all their loads.
However, load boards become “absolutely critical, ” Croke says, in challenging circumstances, such as when volumes surge and a shipper struggles to get all their loads picked up by contract carriers.
“All sorts of issues pop up that make the spot market—the load board marketplace—attractive for shippers to move freight that is over their contractual committed volumes,” Croke says.
For ZF, load boards largely are a solution for “specialty moves” that do not fall into the company’s core carrier contracted rates, as well as for non-standard freight, such as tool or machinery moves and specialized equipment.
“Some factors to consider are the type of freight you are moving, equipment required, what can be achieved with your freight contracts,” Felton says. “Typically core carriers support consistent standard freight shipments that are on contract. Load boards are good for individual moves of specialized freight, in addition to freight that requires specialized equipment not on contract with core carriers.”
When freight brokers help shippers on the spot market, it opens up tens of thousands of carriers for one offload, Croke notes.
“Shippers have a problem with the one offload,” Croke says. “For instance, big carriers might have 300 loads on a dedicated lane between Phoenix and Los Angeles this week, so they have the capacity in place to support that lane.
“If a shipper needs to move one load to Boise out of Chicago, they won’t find a lot of contract carriers that will run that,” he adds. “But the carrier from Boise that is already in Chicago will, and a broker can find that driver on the spot market.”
Small Shippers, Engaged Users
Small shippers without internal transportation departments are among the most engaged users of load boards, according to Brent Hutto, chief relationship officer for Truckstop, an Idaho-based load board.
Those shippers work with freight brokers to manage the spot market, often relying on small carriers on load boards to pick up their freight and get it where it needs to go.
Keeping the spot market strategic. Freight brokers play an integral role in helping shippers use load boards effectively to find carriers they need and ensure service is not overly compromised.
“If a shipper uses a load board’s ‘book it now’ service and the shipper and carrier negotiate and confirm the arrangement for the capacity, all accountability then falls on the shipper,” Price says. “Specifically, the shipper is responsible to get the carrier to show up. If the carrier bounces (fails to show up to take the shipment), the shipper is out of luck and needs to start a new search while absorbing the delays and costing time and money.
“Additionally, in this scenario the shipper is responsible for managing insurance and compliance, vetting the carrier, and scheduling the pickup and drop-off appointment,” he says. “Not only does this mean the shipper is responsible for doing the paperwork, it also means the shipper takes on all the risk.
“For example, if the carrier loses the shipment, the shipper is on the hook for the value of the goods,” Price adds. “This is a compelling reason why a shipper contracts with one or more brokers to look for additional capacity. The broker then takes care of everything for the shipper and is accountable for any losses.”
When shippers are able to use the spot market strategically, and build relationships with brokers and carriers, they can better manage costs. When the spot market and load boards are a desperate move, shippers pay a lot for the volume on those seldom-used lanes.
“Even if it’s only 10% of your volume, the spot market can blow your procurement budget out of the water if you don’t get the right rates on the market for those loads,” Croke says.
Using load boards comes with risks, particularly without support from a TMS.
“With the right tools and historic data on the available carriers, these impromptu shipping arrangements can be made securely and efficiently through a load board,” Price says. “Going without the right tools and data, however, comes with significant risk and potential cost.
“Shippers have spent time building relationships and agreements with their core carriers, but typically have little to no insight around the performance of those on a load board,” he notes. “It’s hard to trust a random carrier, especially if and when the shipper is managing the logistics themselves and there is no prior history.
“Posting on a load board is comparable to posting a personal ad in the classifieds,” Price adds.
“Integrating freight data into your decision-making process can translate into a robust network for your company,” agrees Felton. “Make data-driven decisions whether you use core carriers or load boards.”
The availability of sophisticated technology has brought increased transparency to load boards, helping make shippers more comfortable about using the spot market.
“Shippers can get the best of both worlds,” Hutto says. “They have the ability to use core carriers, and they have the ability to take any freight that is hard to move and move it in the spot marketplace.
They can trust it; they have a connection into it and reports that come back to them,” he says. “Because of the flexibility that the spot market can bring and the technology that has developed, it has changed fundamentally to a more trusted marketplace.”
Most shippers use the “waterfall method” to secure loads, Croke says. Shippers send upcoming loads out to carriers via the EDI (electronic data exchange) tendering process. The carrier that previously had bid the lowest rate on a line will be at the top of the routing guide, with the first option to accept or reject the load.
If the first carrier rejects the load, then it moves to the next carrier on the list and so on down the line. If none accept the load, then the shipper turns to the spot market.
In 2022, carriers rejected more loads than usual. “The split is typically 90/10—about 90% of loads move on contract and about 10% on the spot market,” Croke says. “One year ago at this time it was 75/25—25% of loads moved on spot.
“We moved a lot of air, literally, because shippers were desperate for capacity,” Croke says. “They moved anything they could, anytime they could grab a truck, so consolidation levels were way down. It created the notion that we had higher demand, but we were moving the same volume on more trucks.
“Now, the same volume moves on fewer trucks because shippers are consolidating,” he adds. “The fuel surcharge drove shippers to reduce transportation spend, which accounts for a massive swing back to the normal 90/10 balance.”
A new phenomenon
In years past, major shippers would go to their contract carriers first for every lane. However, in 2022, some shippers took a notably different approach during the request for proposal (RFP) tendering process.
Instead of tendering all their volume, they only tendered the majority of it, focusing on the high-density lanes. They held back the low-volume lanes—the ones with the highest likelihood of being rejected by their core carriers—and instead took them straight to the spot market, where rates are much lower than they were last year.
Shippers who work with a dedicated broker to use the spot market strategically ahead of time for loads that are unlikely to be accepted by core carriers will find a better rate than if they go through the waterfall concept, run short on time, and turn more urgently to the spot market.
“They’ll pay through the nose to move that load,” Croke says.
“This is a new phenomenon,” he adds. “We have not seen this in previous bid cycles. Shippers are using the spot market more strategically to manage their costs and guarantee service.
“Normally it’s hard to control service on the spot market because you don’t know what you’re getting,” Croke says. “Shippers who work with brokers that have a core set of carriers engineer service into their business, and get a much better rate.”
The Pandemic Changed Everything
The disruptive influence of the pandemic and the increased reliance on the spot market that it caused has greatly increased shippers’ comfort level with load boards and the spot market. Forced to use load boards by circumstances, shippers now feel savvier about the process and more trusting of it.
“The pandemic changed everything for a lot of shippers because once they gained experience inside a marketplace that they weren’t comfortable with in the past, and had a good outcome, then it became a trusted marketplace,” Hutto says.
“When you can satisfy the needs of the shipper, and maintain consistent pricing, the shipper becomes more comfortable moving goods in the best way possible, whether that is using core carriers or the spot market,” he says.
10 Ways to Make the Spot Market Work for You
1. Develop strong carrier relationships. Carrier lanes and markets fluctuate over time as their businesses evolve. Working with spot market carriers for exceptional shipping needs might yield a strategic carrier partner for the future.
2. Drive down transport costs. Spot market rates are driven by supply and demand. Consider using the spot market as a financial lever to reduce your transportation costs in down markets.
3. Create supplemental capacity. When outbound shipment volume exceeds dedicated carrier capacity, turn to the spot market to source additional capacity and keep shipments moving.
4. Understand the size of the project. Not all shipment profiles are the same. As a shipper who may be sending a delivery to a job site or a one-off shipment, you may be able to source a better cost and carrier on the spot market rather than use your core carrier capacity.
5. Ship freight consistently. All shippers are not created equal. If your shipping profile is inconsistent and the destination of the next load is unknown until the time the order is placed, it is important to take advantage of the backhaul spot market rather than attempt to work within existing blanket contract rates.
6. Know market conditions. Keep a pulse on transportation market conditions. Events such as weather, natural disasters, and produce seasons can cause disruptions in load-to-truck ratios. Strategically utilizing the spot market will allow you to successfully navigate these disruptions.
7. Maximize carrier backhauls. Carriers use backhaul freight as a strategic piece of their cost structure and relocation of trucks. Utilizing spot market backhaul demand increases your chances of your shipments moving below headhaul market prices.
8. Utilize different equipment. Most shippers send out shipments that have similar profiles and equipment needs. When there is an exception—such as an over-sized load or one that requires a flatbed when all others require a van—then the spot market is the answer. Take advantage of all equipment types that are ready to move your load.
9. Expedite shipments to meet expectations. There are times when a shipment needs to move within hours. There is no need to wait for a company driver to arrive later in the day or your dedicated carrier to tell you they don’t have enough service hours left to deliver. The answer may be sourcing an expedited carrier on the spot market to meet delivery expectations.
10. Adjust for distribution center constraints. Dock door space for an additional drop trailer is never a sure thing. If the shipper’s infrastructure prevents drop trailer usage, then exploring spot market live load carriers to haul the freight will prevent congestion and keep the dock flowing.
–Brian Karwisch, Vice President Integrated Solutions, ODW Logistics