Transportation Procurement 101

Over the past few years, favorable freight market conditions allowed shippers to focus on exploring new technologies such as visibility platforms, blockchain, predictive analytics, artificial intelligence, and more. However, with recent shifts in the freight market, these technologies are no longer just exciting buzzwords; they are now recognized as essential tools for navigating dynamic market conditions.

As a traditionally slow-to-adapt industry, we are seeing renewed attention and investment from not only everyday users but c-suite stakeholders alike. With long-standing practices like the annual RFP still prevalent in many operational strategies, the push toward more resilient, forward-thinking and agile solutions is an encouraging sign of progress.

But, without critical attention, the hype can become a distraction from a few key principles that will continue to remain true for successful transportation practitioners—especially when the market does change.

• Shippers are economically responsible for the movement of their goods.
• Transportation is not simply a commodity; therefore, pricing should consider performance metrics, reputation, and relationships.
• Performance expectations should be defined and upheld in contracts.

Regardless of how complex, high tech, or intelligent the supply chain startup and digital platform landscapes become, shippers looking to drive out costs and create efficiencies in their network need to keep these principles central to their strategic planning processes.

#1: Shippers are economically responsible for the movement of their goods.

The supply chain is complex and involves a long list of stakeholders, service providers, commodities, and materials, but at the end of the day, the shipper—manufacturers, retailers, food and beverage companies, CPG, pharmaceuticals, and more—foot the bill.

That’s why it is important to choose solutions that keep shippers in the driver’s seat. Shippers create demand for capacity, so in the supply and demand balance, freight needs should remain central when calculating market prices.

#2: Transportation is not simply a commodity; therefore, pricing should consider performance metrics, reputation, and relationships.

The transportation rate environment is often looked at like a straightforward supply and demand economics problem. The balance between how much freight must move and the number of drivers and trucks that are available to move them determines if rates are high or low. This trend operates on a continuous and familiar cycle for transportation practitioners. At any given time one side of the shipper-carrier relationship stands to benefit from the freight rate environment.

While this concept makes rational sense, the reality of the trucking market is incredibly more nuanced. If shippers only look at bottom line costs when selecting carrier partners and seeking spot solutions, they fail to consider compliance metrics, natural fits in their networks, and carriers who uphold similar sustainability commitments.

Trucking is not a commodity, so linehaul rate calculations need to encompass all of the factors that contribute to successful freight strategies. Market updates reveal that shifting regulations, fuel price volatility, and evolving sustainability goals further complicate this landscape, requiring more sophisticated strategies to optimize cost and efficiency. 

#3: Performance expectations should be defined and upheld in contracts.

The very fabric of the transportation industry is built upon freight contracts. But when contractual agreements are put in practice under real market influences, it is widely understood that these agreements will not be upheld perfectly. To what degree, and under what circumstances contracts fail will vary, but both shippers and carriers are accustomed to the process of creating an agreement, waiting to see if it is adhered to, and securing a secondary option to cover that freight when the time comes.

Although this is commonly accepted across the industry, this demonstrates a fundamental misalignment in the way we collectively think about capacity relationships.

Regardless of the price environment, it is better for both shippers and carriers when they can find partners that optimally fit into their own network footprint and can deliver on that lane over time. When these matches are made, shippers have confidence that their goods are moving on time and for a stable price point. Carriers, on the other hand, have the assurance that they have freight to cover, eliminating empty miles and truck downtime.

Freight Networks of the Future Will Make a Return to Procurement Fundamentals.

The freight market is approaching a potential inflection point, and traditional methods may not suffice to address the challenges ahead. Establishing consistency at the contract level in such a volatile market is key to achieving budgetary and operational stability for both shippers and carriers. 

However, as industry often shifts focus to the next shiny object, we must not lose sight of the core objective of transportation, ensuring goods move efficiently and effectively. 

Strong partnerships will continue to drive better outcomes for all stakeholders. The future of transportation demands a commitment to these enduring principles. Explore how Breakthrough's freight solutions help shippers keep a constant pulse on transportation network performance and identify areas for cost reduction and efficiency gains.