First thing’s first: Transportation is likely to cost more in 2025. That in and of itself probably wouldn’t come as a surprise — transportation and logistics professionals have been waiting for that shoe to drop for a while. But many of the processes top shippers use to procure transportation on volatile lanes have evolved.
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These were trends that had been growing but were accelerated by the disruptions caused by the pandemic. The result is a new set of rules that rework long-established practices, allowing businesses to ride pricing waves thanks to the amount of data and analytics that has entered this space.
There are four key adjustments to consider as we enter an inflationary market, all designed to take some of the inherent price risks off the table. The first is considering pre-bid awards on key lanes to core carriers at reasonable target rates. Both shippers and carriers crave consistency. Keeping incumbents on important lanes rather than subjecting these lanes to the open bid provides consistency of service to both shipper and carrier at a market adjusted rate.
The second is to tamp down “savings” expectations for a bid. Saving a percentage or two during a bid while heading into an inflationary period can lead to service and capacity problems as the market tightens.
Third, consider a longer contract duration. Carriers might be interested in shorter contracts, just as shippers preferred them when the market loosened. Pairing a longer contract with pre-bid award language could provide both the shipper and carrier some level of consistency with a flexible rate mechanism.
Finally, the carrier mix and size should be calibrated. While reducing the carrier base dramatically during deflationary cycles to leverage volume with a carrier is tempting, shippers do not want to be caught short when the market tightens. This does not mean a shipper should double their carrier base, but rather consider having multiple carriers awarded some level of business throughout the cycle. Similarly, ensure a mix of asset and non-asset providers to leverage as the market tightens.
New rules for shippers
- Data and tech are no longer optional: Utilizing comprehensive data analytics is crucial for predicting market changes and making informed procurement decisions.
- C-suite engagement: The pandemic put a spotlight on transportation, and the procurement process often isn’t fully understood by executives in other parts of the business.
- Agility and risk management are top priorities: Plans and strategies should be in place to navigate market uncertainties, geopolitical events, consumer spending, etc.
- Procure dynamically: Adopt procurement strategies beyond RFPs for greater agility and resilience, incorporating data-driven strategies to optimize cost and service levels.
Taking a portfolio approach
Most shippers had a primary carrier acceptance rate of 95% or higher in 2024. That number will drop as capacity tightens. Diversifying the transportation portfolio will minimize risk of spot market premiums once the current inverted market finally flips.
By using a mix of asset-based and non-asset providers, shippers create resilience in their networks for times of scarcity and when market conditions are less predictable. Fostering relationships with multiple providers can also enhance bargaining power and service reliability.
Ride the wave
The other key to maintaining flexibility and predictability is to take a more dynamic approach to procurement, specifically on lower volume lanes that tend to be the most volatile from a pricing standpoint. Lumping those in with other lanes in the RFP often leads to future tender rejections.
With current capabilities in market analytics, shippers can handle those lanes through mini-bids or other strategies that keep costs more in line with the broader market.
