One Strategy Shippers Are Utilizing to Put their Procurement Process in Overdrive

In a period of softer capacity and operational stress for carriers, it’s important to remember the significance of smaller operators to the overall truckload market. According to the FMCSA data from June 2022, close to 96% of trucking companies operate 10 or fewer trucks. Because there are relatively low barriers to entry into the field,  boom cycles – like the period from 2020 to early 2022 – can attract new entrants in pursuit of high-paying freight, but these smaller, new entrants might not be prepared for the down-cycles. 

In March 2022, full-truckload market conditions, such as waning spot rates and high fuel costs, began to push some smaller carriers out of the industry. This is a trend that may continue as the truckload market continues to fall, especially for those smaller carriers with high operating costs and that rely heavily on the spot market for revenue.

Transfix Sr. Director of Freight Market Intelligence, Paul Poziumschi, observed that common tech models for procuring trucking capacity could potentially run the smaller and more diverse carriers out of the industry. Often, these tools incentivize shippers with complex supply chains to pursue short-term gains, rather than longer term partnerships. 

“It makes complete sense, as large shippers are trying to save value for their stakeholders, including shareholders, but a lot of these tech tools are built for businesses with higher complexity,” said Poziumschi. “In our industry, a model that is just looking for the lowest-priced provider, and ignoring other factors, may not provide the shipper with the best longer-term result. In addition, carriers who are not able to satisfy those algorithms may not be able to survive in that pricing set up and will end up exiting the market.”  

That result may prove detrimental to both carriers, as well as the shippers. However, it must be said that not all shippers use procurement as an opportunity to source lowest cost bids.  

“When done mindfully, shippers can also use bids as a baseline to negotiate with incumbents, and help jumpstart conversations around strategic contract allocation conversions to build stronger, two-way relationships,” said Frank Herrera, Transfix Account Executive. 

Through our reporting partnership with Supplier.io, Transfix offers all our shippers the ability to track Tier 2 Diverse Suppliers or businesses owned and operated by underrepresented groups, such as women, people of color, and veterans. By partnering with Transfix, our shippers can get quarterly, real-time insights into the diversity of the network driving their operations. 

How exactly does a smaller and less diverse carrier market impact shippers? 

Poziumschi said that with a much smaller pool of carriers, shippers will face far more fluctuations in capacity: “What shippers may gain in the short term – lower prices – they can lose in the longer term because the volatility will increase, which means higher swings and lower predictability for those prices.”

As a retailer, for example, you want to build longer term relationships with your carriers – not just because it’s the feel-good thing to do, but because those relationships reduce your volatility and your risk, while also providing predictability and making sure that you survive cycles as opposed to maximizing your quarterly numbers. 

Transfix is building tools that allow shippers to manage their procurement cycles for the long term as opposed to solely focusing on the lowest price on a day-to-day basis. Similar to what happened to capacity after the shockwave of COVID, those old, less flexible tools can quickly lose relevance.

“We are trying to help shippers conceive, optimize, and manage flows over long periods of time, which is what you want to do to minimize costs generally, not only for the next quarter,” added Poziumschi. “The tools that we use are very good at balancing short term value with a longer term vision of rates and capacity.” 

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DISCLAIMER: All views and opinions expressed in this blog post are those of the speakers and do not necessarily reflect the views or positions of Transfix, Inc. Or any parent companies or affiliates or the companies with which the participants are affiliated and may have been previously disseminated by them. The views and opinions expressed in this blog post are based upon information considered reliable, but neither Transfix, Inc. Nor its affiliates, nor the companies with which the participants are affiliated warrant its completeness or accuracy and it should not be relied upon as such. All views and opinions are subject to change.