From the COVID pandemic until spring 2022, shippers were at the mercy of a constrained market. With little to no leverage – and with goods to move – shippers paid higher rates to get their products to market.
But the freight market began shifting during the second quarter of 2022, and shippers currently have more bargaining power. Now that the market has been inverted, shippers have an opportunity to leverage their negotiating power to better optimize freight spend and even-out spend levels. However, to maximize this optimization requires accurate market data and analytics. Verified third-party data and analysis can give shippers solid, market-based information to renegotiate carrier rates, as well as improve their internal operating data and benchmark performance against the market.
Freight markets were inverted by April 2022 – spot rates dropped below contract rates. Currently there is more capacity than freight; therefore, shippers have negotiating leverage and greater flexibility.
Most carriers rebidding their contracts with large shippers are seeking more volume, and are willing to lower bids to ensure that volume. Therefore, contracts are about 12% lower than in 2022.
DAT Freight & Analytics’ Principal Market Analyst Dean Croke said, “If shippers’ contracts are six months or older, now is the time to capture lower prices. Shippers should integrate key operational and technology changes in today’s slower market instead of in a tight market later…”
Winning in the market requires current data and analytics
Shippers using only their own historical data as a benchmark may be missing the larger picture, particularly in a complex and ever-changing market environment. Without outside information to reference, a shipper may overpay on its freight spend and/or receive less than robust service.
By adding verified benchmarking information to their data and analytics stack, shippers can more easily see inefficiencies and opportunities. With data backed by an analytics firm, shippers also can use the information to refine their networks. Shippers can confidently negotiate from a position of knowledge by leveraging historic, current, and forecasted rates.
Taking control of freight rates
As noted above, the trucking freight market currently has over-capacity. Many trucking companies began or expanded operations during the strong pandemic-related market; now there are too many trucks chasing too little freight.
DAT recently pointed this out: “Shippers should continue to take advantage of the inverted market to secure lower contract rates, but also to shift more loads away from the routing guide (after meeting carrier commitments) to leverage the spot market. The trend of using a mix of contract and strategic spot rates will continue beyond the current soft market.”
To make the most of available opportunities, shippers should benchmark their performance by comparing their freight costs to the overall market. Using benchmark analytics adds predictability and flexibility to shippers’ transportation planning. With analytics, shippers can identify carriers and lanes that are underperforming, reduce RFP timelines, and see where their transportation networks are most at risk for unexpected spot market exposure.
The knowledge and certainty that come from accurate benchmark analytics will help shippers now – during favorable market conditions – but will also help later, whenever the market changes.
Proactivity works in shippers’ favor
Instead of using only traditional RFPs to evaluate the market, shippers with access to holistic market data can look beyond freight spend only and also compare themselves to leading performance indicators.
Benchmark analytics provide transparency so that negotiations take place in good faith – carriers see shippers’ market-based rationale and understand the basis of an RFP. In addition, shippers can check their internal data against the market to refine it and generate more precise decision-making.
A number of providers offer data analytics of one kind or another. DAT iQ’s benchmark analytics lets shippers compare their transportation networks against hundreds of the nation’s top shippers. DAT iQ uses over $35 billion in annualized, anonymized shipper transportation spend to provide actionable insights for its shipper customers.
The bottom line
The trucking freight market is never static; it is cyclical, with highs and lows. From 2020-2022, carriers had the pricing power. Now, the market favors shippers. They can use benchmarking, analytics and competitive intelligence to see strengths, areas for improvement, and ways to optimize operations. With sound data and strategy, shippers can significantly lower not only their immediate freight spend, but their future freight spend as well.