How Real-Time Freight Rates Help Shippers Navigate Market Volatility

MercuryGate Blog - Freight Category
Today, more than ever, shippers need protection from market volatility throughout their supply chain. Today’s trucking rates, available capacity, and demand sit below the 2018 peak. Jeff Berman of Logistics Management notes, “Today, while it may not be operating at the same elevated levels, the market remains strong overall, even though rates have taken a step back, capacity has loosened, and ongoing trade tensions have sent ripples throughout the economic outlook.” Rates continue to present a challenge to shippers who are under pressure to cut costs from prior years when they overspent in a tighter freight market. While shippers continue to work with carriers to lock in contracted backup rates to protect themselves from market volatility, those backup rates can quickly go stale and leave shippers without coverage and expose them to much higher rates for last-minute spot coverage. Real-time rates can offer a solution for shippers to capture value in any market when contracted backup rates fail to meet their needs.

What Causes Rate Volatility?

Contract rates are determined during shipper RFP processes and are based on predictive models, historical volumes, and the assumption of guaranteed capacity. However, it is difficult for contracted rates to accurately predict annualized conditions. Any number of factors continually impact and shift market rates to move freight. Research from digital freight network Convoy noted the current market is impacted by multiple factors and that, “the American economy continues to run at two speeds: The industry sector gearing down while consumers stay revved up in high gear.” Seasonality is another factor that reliably shifts rates up or down depending on the product being hauled and the lane. Shippers and carriers use historical data and models to produce a contracted rate, but unanticipated factors such as new tariffs can make that rate no longer relevant.
If the market cost to move a load drastically increases from a contracted backup rate, carriers may no longer be able to accept a load tender. Historically, shippers have had to rely on time-consuming back-and-forth processes when requesting rates from carriers in their backup routing guide. If the routing guide fails a shipper, then they must move to the spot market, where there is no set contracted rate, and the shipper will inevitably pay more for last minute coverage. In today’s market, shippers need a careful balance between contracted and real-time rates to keep freight spend under control while maintaining coverage. Introducing automated real-time rates to routing guides can provide another way to capture value in any market and avoid overspending on freight.

Backup Rates Are Only as Good as Their Value in Comparison to the Present Market

Shippers and logistics service providers can’t save money or make the best-informed decision without having the full picture of the current market. That’s where real-time freight rates come in. Market conditions will continue to fluctuate throughout the year and introducing automated real-time rates into the routing guide can help shippers capture value in any situation as the market continues to shift.
When capacity is constrained, the market will push the rate higher than when backup rates were negotiated. The shipper may find that backup carriers are also unable to cover a load at the pre-negotiated rate. In this case, the shipper may be forced to pay a higher rate in the spot market. Introducing automated real-time rates into the routing guide allows shippers to get guaranteed coverage for their load and lock in savings by avoiding overpaying for last minute spot coverage.
When capacity is loosened in a soft market, automated real-time rates allow a shipper to avoid overpaying with backup rates that are too high for the current market. Convoy’s automated real-time rates provide instant quotes with guaranteed tender acceptance, so the shipper saves hours by avoiding the back-and-forth with carriers when booking a load.

Deploy Real-Time Rates Throughout Your Shipping Processes

Automated real-time rates allow shippers to make smarter decisions by locking in savings in any market. Adopting this technology gives shippers opportunities to recapture revenue, giving them a competitive edge. The solution to better freight management lies in using technology to access and apply real-time rates to every shipment. Thanks to the partnership between Convoy and MercuryGate’s enterprise TMS platform, shippers are handling contract and spot market rate volatility and leveraging total transportation resources more effectively.

Find out more about how your organization can regain control over logistics spend by contacting MercuryGate today.

Bob Davidek

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