July 2021 | Commentary | Logistics Management

It's Time to Rethink the Routing Guide

Tags: Transportation Management Systems (TMS), Transportation, Technology

The routing guide is the manifestation of a shipper's transportation strategy and a rough estimate of its budget for the upcoming year. It connects the annual bid with actual load tendering within a TMS, and strategically allocates and assigns each shipment to the appropriate carrier.

Dr. Chris Caplice, Chief Scientist, DAT iQ and FMIC, Founder and Co-director, MIT Freight Lab, 617-258-7975

For most shippers, the routing guide handles 80% to 90% of all shipments—essentially, all contracted moves. But while the routing guide works well for certain lanes, it can fail spectacularly in others.

For example, lanes with intermittent, non-consistent, and low freight volumes tend to have disproportionately low primary-carrier acceptance ratios, all else being equal, according to research at the Massachusetts Institute of Technology's FreightLab and elsewhere.

Analysis of more than 100 shippers in DAT's Freight Market Intelligence Consortium revealed an abundance of lanes with very low volume. Typically, lanes with fewer than 12 loads per year constitute 50% to 80% of all lanes within a shipper's network, yet these lanes comprise just 3% to 7% of total volume.

Worse, these ultra-low-volume lanes account for 20% to 40% of the shipper's total spot truckload freight volume. Compare this to lanes with more than 100 annual loads where the average is just 2% to 4% spot.

The high percentage of spot freight on lanes with intermittent or low volumes demonstrates the failure of the routing guide.

Unfortunately, most shippers include low-volume lanes as separate point-to-point lanes within their annual bid. Awarding them can create problems for carriers as many of these lanes never have any volume to tender.

One approach is for shippers to aggregate several low-volume point-to-point lanes into a zone-to-zone lane in order to compile "enough" volume. Unfortunately, these zone-to-zone lanes, even with more loads, have low primary-carrier acceptance rates.

There is a Better Way

A better strategy involves segmenting lanes into a portfolio of three buckets: dedicated, contract, and dynamic. In the first bucket are those high-volume, consistent, balanced lanes that are best served by a dedicated or private fleet. The second bucket consists of medium- to high-volume one-way lanes that aren't sufficiently balanced within the shipper's own network. These should be bid out with the annual bid and run through the traditional routing guide. The third bucket contains lanes where volume is sporadic or low.

Instead of throwing these lanes into the routing guide with contract rates that rarely materialize, shippers can hand them directly to a third party, perhaps through an API connection from the TMS. When a "third bucket" load comes down, it's automatically tendered to a 3PL, broker, or carrier with the rate set dynamically using indices or with negotiated guardrails.

This dynamic approach to tendering non-core lanes has many benefits: it reduces the amount of work required to design and run the annual bid; it reduces the size of the routing guide; and it allows the shipper to focus attention on lanes that truly move the needle.

The routing guide is still an important component within a TMS, just not for every move or every lane. Technology, communication, and data science advances enable shippers to better manage their freight network as a portfolio—fully utilizing dedicated, contract, and dynamic approaches.

Given persistent lane imbalances and the need to manage costs and capacity, the venerable routing guide is a good place to start.

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