US shippers get more ‘surgical’ in truck contract bidding

A truck travels on a highway in the United States.

As the fourth quarter begins and the US trucking peak looms ahead, many shippers are launching bids that will take effect in the first or second quarter of 2019, setting price and service expectations for the year. Photo credit: Shutterstock.com.

US shippers walloped by rate hikes in 2018 are taking their 2019 business to trucking companies one piece at a time, increasingly bidding lane by lane, a logistics CEO said. “This year, because of the performance of the market, we’ve done more minibids than ever in the history of this company,” said Frank McGuigan, CEO of logistics company Transplace.

That’s a shift from the recent trend toward putting an entire book of business up for bid each year, regardless of relationships with “core” carriers. Shippers who suffered double-digit price increases in 2018 increasingly are open not just to contracts of different lengths, but a more precise, pinpoint approach to bidding and contracting, according to McGuigan.

Shippers launching bids for 2019 

As the fourth quarter begins and the trucking peak looms ahead, many shippers are launching bids that will take effect in the first or second quarter of 2019, setting price and service expectations for the year. Transportation bid management is an important business for Transplace, a Frisco, Texas-based company that had about $3 million in revenue in 2017.

“We’ve started the [data] aggregation process, so the bidding is not out on the street yet,” McGuigan said in early October. “We get much of our bidding done in the fourth quarter going into January,” he said. “We try to leverage the shipping networks of many of our customers together. We try to put low-yielding, low-volume lanes together so they’re more attractive.”

The approach to bidding needs to become more surgical, McGuigan said. “What shippers should be doing is absolutely making sure they understand where the points of failure are in their network, and what’s least likely to fail,” down to specific lanes. “Then they can build a routing guide that keeps them out of the spot market more than in 2018,” he said.

What he’s suggesting is a data-powered approach to contracting and bidding at a much more tactical level than most shippers have been able to approach. The explosion of data expected to pour from the Internet of Things will give shippers, for the first time, the ability to act on information, even automatically, that previously was either unavailable or too costly to obtain.

The biggest value may come through collaboration with other shippers to fill mutual gaps in lanes with capacity and backhauls. That’s a step many companies have resisted for competitive reasons and because of the complexity involved in such collaboration. But after seeing truckload contract rates rise into the double digits, more businesses are willing to share.

“I would recommend shippers not just blindly bid their whole business,” McGuigan said. “To the extent possible, shippers should try to combine their networks with other shippers so you get the benefit of the total network effect,” McGuigan said in an interview. “That way lower volume lanes and complementary lanes can be managed together” to increase capacity and lower costs.

Surgical ‘minibids’

More surgical minibids are just one mechanism shippers use to cope with the tightest, costliest trucking market in years. Shippers are also experimenting with bids that include guaranteed volumes and longer- and shorter-term bids that help them lock in capacity. Carrier rate hikes this year have also been very lane-specific, according to Transplace and other companies.

That makes “average” rate increases misleading when it comes to determining actual cost increases, he said. “You may see contract rates up 17 or 18 percent, and spot rates up 30 percent, but then you’ll get the lane from upper Michigan to Pennsylvania where you’re paying 300 percent more year over year, not 30 percent. Those lanes are outliers that kill averages.”

McGuigan expects 2019 to be a tough year for US truck shippers, but not as tough as 2018. “We expect the [trucking] market to loosen, but you have to plan inflation in the contract rates,” he said. “An increase in contract rates is likely, but the spot experience will not be as bad as it was in 2018.” Trucking capacity constraints, he said, probably peaked in June.

“We don’t think any month, even going into next year, will be as bad in terms of capacity and spot rates as June was this year,” he said.

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @willbcassidy.