Even in a down business year (e.g., 2008-2009) where transactional truckload shipments dropped by almost 80%, spot rates still cost more than contract rates. In your experience as a shipper, you may already have a general sense that combining and redefining some lanes—particularly low volume lanes—could help you find additional transportation cost savings.
Research suggests that when you bundle low-volume lanes together, you can increase the density, allow carriers to optimize their networks, and make the lanes more attractive to serve. These logistics best practices can help save shippers 7% on average vs. spot market rates.
Research and analysis of 500,000 historic truckload transactions shows that:
- Point-to-point is the most common bid type—and can produce the best pricing when demand is predictable and volume is high.
- Bundling all point-to-point lanes into a larger origin and destination area could deliver lower rates. However, carriers may still not be able to lower rates if the area is too large to serve economically.
- Re-engineering lane boundaries at the origin and the destination to include more loads helps increase network optimization for carriers, making the lanes more attractive. To capture more shipping density and lower costs, aggregate region-to-point, point-to-region, or region-to-region.
A bid aggregation strategy can be applied to your business in many ways:
- Understand lane bundling. Know the relationship between quantity of loads on a lane, total distance of the lane, and the expected area the carrier will drive empty to pick up or deliver the load.
- Bid out overlapping lanes. Determine a cost breakpoint for aggregating region-to-point or point-to-region bidding rather than point-to-point. It will almost always be more cost effective to establish a region-to-region lane than to go to the spot market.
- Provide shipping history. The more you can tell a carrier about a lane, the better they can compare it with their own network.
- Aggregate lanes that had no contract rates. Because the cost of spot bids is so high, these aggregated lanes can be relatively large and still save when compared to spot lanes
For more details about how to make bid aggregation work for your supply chain, download and read our white paper, Aggregate Low Volume Lanes, Lower Transportation Costs.
Editor’s note: This post originally ran on Transportfolio. Since it’s a relevant topic for Connect readers, we wanted to share it with you here.