Believe it or not, counter to every nerve in your body, you should be buying a portion of your freight business on the spot market! Take a minute, get those gasps out, and SI will explain why.
Simply put, for the vast majority of product-based companies, freight is the one category that is inefficient from a contract perspective. At first thought, this might not make sense as efficiencies and cost savings typically come from good planning, but this is precisely why you can often get significantly better rates spot-buying your freight than contracting it.
To see this, you have to look at the situation from your carrier’s viewpoint. It is most efficient, and most profitable, when it’s trucks are kept full. Your contracts keep your carrier’s trucks full at most half the time. Specifically, your contracts keep your carrier’s trucks full from point A to point B. Maybe it has a few pallets to take back to point A, but that doesn’t fill the truck, and it’s only efficient (from your point of view) if the carrier waits until the truck is full to take the pallets back. In order to maximize efficiency and profitability, the carrier needs business from point B back to point A. The chances of the carrier getting precisely this business when competing against 70,000 other carriers and only getting called to the bid on one of every 10,000 or 20,000 freight contracts being tendered are probably 40,000 to 1. Not good odds.
Plus, even if the carrier’s lucky enough to get business that geographically fills, say, 80% of the route from B back to A, chances are the timing doesn’t line up right and the truck ends up sitting idle for a few days on a regular basis, which also takes away from efficiency or profitability.
Because of this, and because of the fact that the carriers have to hedge their bets when you ask them to contract three, six, and twelve months out, you end up paying, on average 14%-15% more for contracted freight than you do freight purchased efficiently on the spot market (if you know what you are doing or use a good freight brokerage). In particular, even if you’ve done a great job on your contract, you’re probably paying, on average, over $1,400 for a load that you could get for $1,300 or less on the spot market.
That’s why Sean Devine and John Labrie, each with over a decade of transportation sourcing and optimization (at CombineNet, Emptoris, and Con-Way), built BuyTruckload.com — the first automated truckload brokerage service. This service, built on an advanced real-time truckload optimization model, takes your requirements, searches their database of over 70,000 carriers (and current spot market prices) across the United States (each with an average of 4 trucks), and gets you a quote that is, on average, $100 less than you would expect to get otherwise (buying yourself with a limited selection of carriers), and $200 less than you would if you were contracting months in advance (based on an average truckload price of $1,400+ and an average savings of 15%).
It’s quick, simple, and almost obvious — and that’s what makes it so useful. As a buyer, all you have to do is define the acceptable authority types (contract, common, broker), the acceptable / required equipment types (bus, van, flatbed, refrigerated, dry van, etc. — they allow for 16 different types), the cargo authorities (private, property, etc.), the safety alerts you will (not) accept (unsafe driving, driver fitness, etc.), the required number of power units, and where you need the trucks and the system will identify the relevant carriers. Define your shipping requirements, and it will generate binding quotes. It’s that simple, and if you use the right mix of contract and spot-buy freight, it could save you a lot of money.
Please note that the right mix is key! Even if the 15% savings are there for you, it’s probably not a good idea to put all of your freight on the spot market. You need to know you have enough reserved freight for critical products (at critical times) and carriers need to know they have enough baseline business to sustain themselves. the doctor‘s gut is that you probably want a 2 to 1 ratio between contract and spot market, on average. In some industries and/or categories, this ratio will be higher (because, let’s face it, you don’t care if you get those office supplies a day late), and in others it will be lower. But a 2 to 1 ratio is probably a good starting point.