As part of the Purchased Transportation track this past March at Evolution 2019, Descartes’ annual global user and partner conference, I moderated an interesting panel discussion comprised of industry experts and practitioners from Nolan Transportation, Echo Global Logistics and Redwood Logistics.
Q: How have you seen the capacity and costs of freight change in the first part of this year? How do you compare this to your experience in 2018?
Garrett [Nolan]: "As of January 2019, we are seeing new annual awards being distributed and primary carriers for lanes changing. Contract volumes and rates are lower, which has led to spot market rates falling dramatically. After the hurricanes and the implementation of the Electronic Logging Device (ELD) Mandate in Q4 2017, we entered the ‘Great Capacity Crunch of 2018’. The effective miles that a small-to-medium sized carrier could cover in a week shrank as they became 100% ELD and Hours of Service (HOS) compliant. All carriers (large and small) used this opportunity to exercise pricing leverage and pushed both contract and spot market rates to their highest point in at least a decade. This high rate environment lasted until October of 2018 when we saw the first signs of slowing freight volumes. This small dip came right in the thick of RFP season and annual quoting for 2019. Brokers and carriers quoting for contract business bid lower as the market finally started to loosen up."
Jay [Echo]: “We are noticing fairly significant differences in capacity levels and prices in the first part of 2019 vs. 2018. We attribute this to a number of factors related to the economy, ELD and contractual pricing commitments carriers have made over the past year. In Q1 of 2018, brokers and asset providers were still ‘honoring’ rates they submitted in early 2017. As the market heated up, these companies rejected high levels of freight and, as a result, the spot market was much more volatile in Q1 of 2018 than 2019. From my perspective, this is likely the largest factor in the year-over-year disruption we are feeling. That said, rates are still much higher than just about any other year on record, so it is still a good environment from a pricing and spot opportunity standpoint.”
Q: With the capacity shortage and spikes in rates last year, how has this impacted your customers’ expectations?
Jeff [Redwood]: “Customers still expect service but now want lower rates. The pain from last year is fresh. They are also asking for ‘enhanced service’ with accurate data. Given the pain many transportation departments felt last year, the focus appears to be on achieving lower transportation costs in 2019, while improving service levels. One of the ‘shifts’ we are seeing from some clients is changing expectations around the way 3PLs share data to help improve shipper operations.”
Q: In today’s market, there is a lot of discussion on being “carrier friendly”. Can you outline how you leverage your transportation management system, real-time visibility, and capacity matching technology to strengthen your relationships with carriers?
Jay [Echo]: “In a soft or tight market, carriers have choices. As a result, 3PLs must constantly be striving for ways to attract carriers by getting them the freight they care about while being easy to do business with. Different factors motivate different types of carriers, so we try and ensure that we have a variety of ‘hooks’ from a technology, process and people standpoint. We also have to remember that carriers have a plethora of operational setups, so it is important not to implement a one size fits all technology or relationship management approach. I also want to point out that while technology in our space is evolving, the ‘relationship’ with both the company and individual broker in my mind is still a critical factor (beyond good freight) at this time, in a carrier’s decision on who they want to work with.”
Q: While freight broker technology can provide a huge benefit, there is also a lot of discussion on threats of disintermediation. Can you comment on the threats and potential challenges in dealing with the buzz around digital freight matching?
Garrett [Nolan]: “We are definitely starting to see some technology providers in our space turn their focus more towards shippers, and even try to sell the visibility that 3PLs helped drive directly to our own customers. There has always been some degree of a blurred line between tech provider and competitors in our space, and I think what you’re seeing now is companies being forced to choose one side or the other. As many choose the side of the ‘tech-enabled 3PL,’ this also presents an opportunity to those that choose the side of the tech partner for 3PLs, who now need help to keep up with these capacity freight matching solutions entering the marketplace. I don’t feel that we as a business are particularly worried or threatened by any technology-based company in our industry displacing us, but it’s definitely important that we all remain aware of what these companies are doing.”
Q: We have seen real-time visibility become expected from many shippers. How do you look at the investment in visibility and are there scenarios where you can create value-added services built on technology?
Jay [Echo]: “I think the key scenario where real-time visibility has added value is in enabling brokers to build new processes to improve our ability to proactively learn about an issue. Given our historic approach to providing high levels of service, we always had a good idea of where our trucks were throughout transit but, when things went wrong, we weren’t always able to react as fast as we now can. These types of alerts allow us to provide a better service experience for our clients. While many clients care about on time pickup (OTP) and on time delivery (OTD), we’ve noticed proactive communication is just as important as any service score.”
If you would like to learn more about the technology discussed above, check out our videos on Capacity Matching, Real-time Visibility, and Transportation Management for Freight Brokers.