Build Your Best Truckload Strategy

    The best laid truckload strategies all contain some inherent variability in executional performance that is frustrating to shippers and service providers alike.

    University research sponsored by C.H. Robinson has garnered insights into the truckload market construct and the preferences of participants that are correlated to outcomes. These insights have been built into our strategies, processes and technologies. This guide offers a summary of our research, method and tools to develop a more capable truckload strategy.

    Because it illustrates the contribution and limitations of the truckload market, as well as the interplay of shippers’ freight portfolio with the market, our latest academic research has been additive to a more traditional approach to truckload procurement and route guide construction. In short, the market can offer benefits to improve the attractiveness of some lanes while offering no benefit or additional challenge to others. With these insights, awarded and spot capacity strategies can be developed with results that are closer to plan.

    A truckload transportation plan based on researched strategies and experience supports budgeting and strives to limit the impact of increasing market volatility, while delivering the best possible service any market can offer.

    The best truckload plans leverage:

    • Load level data
    • Shipper lane attributes
    • Market lane attributes
    • Contract/awarded volumes
    • Spot market strategy
    • Rationalised supplier base of top performers
    • Predictable procurement cadence
    • Maintenance

    This guide will offer an introduction to

    • Research based strategies
    • Influence and value of the broader market and shipper lane segments
    • Value of an integrated contract and spot strategy
    • Capacity strategies

    Truckload research driven process

    Scrub and segment your historical truckload data at the delivery level. Lanes with actual freight, segmented by demand predictability are the key to beginning your procurement event process.

    It is no secret that good preparation is central to any project’s success. In the case of truckload procurement and route guide strategies, delivery level historical data creates the opportunity for the best results. Our research with universities has found a portfolio of insights that can be leveraged in a procurement strategy and we offer two important ones here.

    Cleansing data

    Cleansing data for inaccuracies, closed facilities and discontinued supplier and consignee relationships is key to procurement event success and route guide performance. Of the cleansing opportunities, ghost lanes is a top focus area. We commissioned research1 to look at the impact of lanes included in procurement events and route guides that do not result in tenders to the awarded service provider.

    • 65-80% of lanes contracted during the procurement event become ghost lanes.
    • Every 10-percentage point increase in ghosted lanes to a service provider in a given year leads to 1% higher contract prices across all lanes from that service provider the following year, as compared to a potential bid at the lower ghosting rate pattern.

    While shippers tend to include all possible lanes in a procurement event and seek to award them for the purposes of supporting load tender and payment, these unlikely awards can result in an increase in the total pricing paid to an individual service provider. Presumably, the service provider is buffering costs for unplannable loads and work from unfamiliar lanes.

    Demand patterns

    Research2 suggests that there is a direct correlation between predictability of the demand pattern of loads and the likelihood that the primary provider will accept the tender. First tender acceptance is the plan and leads to expected costs and performance. Delivery level data affords for understanding not only annual volume, but the weekly and daily pattern and volatility.

    When delivery tenders can be anticipated, capacity plans can be made by the service provider and a route guide performs at its best. When delivery tenders are more difficult to predict, scarce truck capacity (especially in a tight truck market) leaves some providers forced to decline tenders, leaving shippers to experience cost over runs from backup providers and the spot market.

    Having accurate data and the most likely lanes and delivery activity offered in a procurement event will yield the most capable route guide and lowest plannable cost.

    "Research was conducted over multiple years, across all market cycles"

    Segment your freight by primary market corridors. Leverage the strengths of specific corridors with contracts. Build strategies for the limitations of the others in the spot market.

    Marketplace view of shipper portfolio

    Truckload transportation is a market-based engagement and despite how attractive a shipper's freight may appear, the broader market influences truckload strategy. Creating a segmented view of how your freight overlays with the market is the first step solving for the influence of trade corridors. Trade corridors are able to support a shipper where they are well balanced in both directions or have heavy consistent volumes in one direction. Where the inbound freight flows are imbalanced or very sporadic, capacity and pricing is more problematic. Our Procure IQ tool and experience will offer data visualisation and dynamic analysis to aid your procurement strategy.

    Shipper freight portfolio segmentation

    C.H. Robinson sponsored academic research3 further increases the value of looking at the broader market segments by overlaying shipper freight directional flows and balance. The summary finding suggests that shipper inbound lanes and sparsely occurring lanes can benefit from two of the broader market's strongest segments, affording increased commitment and strategy than a traditional, responsive spot market approach.

    Recommendations: From this segmentation analysis, lanes are guided into one of four high level capacity strategies:

    • Contract dedicated possibility: the lanes in this segment have attributes where a dedicated strategy is a possibility, where that level of service is desired. Where dedicated is not desired or not the perfect fit, a hierarchical award-based route guide will perform very well.
    • Contract: these lanes have the attributes for a hierarchical award-based route guide and will perform very well.
    • Structured spot market: These lanes, while not the best lanes in a portfolio for route guide strategies, benefit from being found in strong opportunity market segments. A digitally enabled dynamic capacity approach with more assurances than a traditional spot market strategy can be constructed.
    • Transactional Spot Market: A digitally enabled spot market strategy for those lanes with low attractiveness and aligned with less capable market corridors.
    Truckload market segmentation: Dedicated contract to spot market freight

    This figure presents broad recommendations for contract or spot capacity strategies as a result of overlaying segments of the shipper freight portfolio and the broader market.

    This approach was developed as a result of our academic research examining shipper route guide strategies and historical performance. The net result is capacity strategy that respects the market attributes and the shipper's freight and lane attributes. This approach will produce results that offer best performance and pricing any market has to offer.

    "Demand pattern of delivery tenders is the leading factor in your supply chain tied to first tender acceptance"

    Building an effective truckload capacity strategy begins with identifying freight demand patterns. Understanding demand is foundational to planning your truckload capacity.

    C.H. Robinson sponsored academic research4 found that second only to the market cycle of loose/oversupplied or tight/undersupplied, demand pattern of a lane is at the top of most influential lane attributes that correlated to first tender acceptance in a route guide and paying the planned rate.

    Research5 suggests that first tender acceptance of load tenders by primary service providers is correlated to the predictability of demand patterns with low volume volatility. Procurement and capacity award strategies as a result can be tailored to leverage predictable patterns and more effectively attend to those that are less predictable.

    Lanes with low volume don't lend themselves well to contract awards, but research6 has found that aggregating compatible low volume lanes together or low volume lanes with high volume, same corridor lanes, can smooth out demand and raise them to plannable and contractable lane bundles more attractive to service providers. Compatible lanes have origins and destinations located where carriers see them as nearly the same geographical location and will accept them as a one price operational bundle.

    Following lane aggregation and attempts to amend business processes to smooth load tenders, lanes with known demand pattern limitations should be pulled out of the traditional contract strategy and work to create a strategy respecting the lane attributes. An interesting example of contractability but not a great candidate for a traditional route guide is seasonal products that have high volume, predictable demand within a finite delivery window and defined lanes. A situation like this might lend itself to establish an outsource relationship or a very limited capacity pool designed to address the seasonal surge.

    Utilise key service objectives and primary lane attributes to align your freight with available capacity services.

    With a freight portfolio segmented by key attributes and capacity strategies established (contract awards or spot strategies), the opportunity is to align with capacity communities most interested in and capable for each segment. Some examples include:

    • Dedicated: Plannable lanes with exceptional service needs are separated from the hierarchical route guide procurement event for a separate dedicated services procurement event.
    • Drop trailer service, asset and brokerage strategies: A freight portfolio may have more drop trailer capacity needs than a core asset carrier community can provide. Brokerage can offer additional drop trailer services by both leveraging and aggregating smaller carrier capacities either with their own assets or homogenous trailer pools such as C.H. Robinson's Power Plus fleet.
    • Live load contract/award: Live load services can often be lower costs than drop trailer services, especially on lanes that don't support drop trailer economics. Live services open up a great deal of additional market capacity which lends to lower price and greater assurance of capacity.
    • Live load structured spot market: Shipper inbound and low volume outbound lanes that are in balanced market and head haul corridors may lend themselves to a structured spot market programme such as index based pricing or other semi-structured approaches. These techniques attempt to improve the predictability of first tender acceptance and price in a spot market experience.
    • Live load spot market/transactional: Finally, those lanes that don't lend themselves to any of the more planned approaches to capacity will leverage the transactional spot market. Today's strategies however are much improved over historical manual approaches as they are founded on a digitally connected, automated approach between the shippers TMS and the spot market supplier.

    Focus your procurement event on a regular cadence with your core capacity providers to build a more successful route guide.

    With a go to market strategy set, the formal procurement event is the process to engage preferred transportation suppliers, working with them to discern what lanes work best for their networks and portfolio of services in the upcoming year. The following are researched insights that are correlated to transportation plan performance.

    "Leading shippers have a route guide strategy that is based on a rationalised set of top performing transportation providers, each having a defined contribution. "

    Rationalised supplier base is correlated to route guide performance

    C.H. Robinson sponsored research7 found that shippers who used a small portfolio of transportation suppliers who perform well across a portfolio of shippers tend to have higher first tender acceptance, leading to best price paid. Strategies using a large portfolio of suppliers and/or using suppliers with a history of low performance across the shipper community tend to experience greater first tender rejection, requiring the use of more expensive back up providers.

    Procurement events on a predictable cadence is correlated to higher first tender acceptance and lower price paid

    Research8 found that shippers with annual procurement events saw their route guides outperform shippers who either did not do a formal procurement event or did not follow a predictable cadence. The working hypothesis is that when a transportation supplier can anticipate the renewal event, the tolerance to accept delivery tenders on ageing pricing is higher. Annual cadence was the most common predictable strategy.

    Offer the procurement event with freight segmented by capacity strategy

    The most basic segmentation of a freight portfolio is

    1. Dedicated capacity
    2. Awarded hierarchical route guide
    3. Spot market

    As previously cited, lanes with predictable load tender patterns are best suited for awarded hierarchical route guides. When building a procurement event, consider engaging suppliers intentionally by the service sought for each segment. Also consider segmenting the spot market segment by those lanes that are in well placed market corridors from those in less capable market corridors. This enables strategic engagement for both structured and transactional spot market capacity proposals.

    Minimise unplanned spend from route guide failure by including a digitally enabled spot market strategy as your key back up.

    Primary supplier awards are most often made to one to three service providers. Lane volume is a primary influencer to the primary award strategy. Many lanes can be serviced by one primary. Some lanes will require ratio awards and tendering due to lane volume and available capacity from core suppliers.

    Develop a back-up supplier strategy for each lane between the second and fourth back up. C.H. Robinson sponsored academic research9 found that tight and loose markets influence back-up supplier needs and benefits. During undersupplied/tight markets, the fourth back-up is about the extent of coverage that will be experienced. During oversupplied/loose markets, the second backup is typically all that is needed. The benefit for an extended tail of back up suppliers is roughly defined by these limits. Tight markets tend to demonstrate that the fifth or higher back-up supplier simply reject tenders. The result in most TMS applications of long tail back up strategies is that the majority of the day is spent working to the end of the route guide and then going to the spot market at the disadvantaged time of the afternoon. Price wise the deep back-up providers can cost as much as the spot market premium on top of a possible on-time service risk.

    Truckload research | Route Guide Depth infographic

    Insert a digitally enabled spot market strategy vs. a long route guide tail. Today's ability to award back up enable a faster engagement to the spot market. Speed to market is key to capacity and pricing options. This can be done after the first or second back up or in place of those back ups.

    Plan for route guide maintenance

    Both shipper and carrier networks evolve over the course of a year. Shipper's forecasts have variability from load volumes and patterns presented in the procurement event. Carrier's plans for asset flow vary with their shipper customer variances. As a result, route guides tend to get stale over the course of a year, especially in tight market years. Research10 sponsored by C.H. Robinson found that shippers who maintain underperforming lanes in their route guides tend to spend less than those shippers who wait until the annual renewal to make adjustments to awards.

    "Shippers who maintain underperforming route guides have less unplanned spend."

    Today's truckload economy is comprised of sophisticated carriers, 3PL’s, shippers and consignees. Companies are increasingly focused on yield, efficiency, effectiveness and reliability.

    Technology is enabling an ever-increasing capability to design and operate a truckload strategy that embraces the breadth of capacity markets and available services. The ideas presented here are part of C.H. Robinson’s academic research and capacity portfolios. These ideas can be used as discrete improvement tasks or as an entire approach with a consultative C.H. Robinson engagement. Please engage your C.H. Robinson representative for more information and collaboration.

    Research References:

    1 Yu Xuan (Sherry) Liu and Alex Mil, Master of applied science in supply chain management, capstone project. Academic advisors: Angela Acocella, PhD candidate at MIT's Centre for Transportation and Logistics (MIT-CTL) and Chris Caplice, PhD, 2021
    2 Nishitha Aemireddy and Xiyang Yuan, MIT-CTL Master of applied science in supply chain management, capstone project. Academic advisor: Chris Caplice, PhD, 2019
    3 Aaron Zheng and Jorge Oliver, MIT-CTL Master of applied science in supply chain management, capstone project. Academic advisor: Chris Caplice, PhD, 2023
    4 Grace Caza and Varun Shekhar, MIT-CTL Master of applied science in supply chain management, capstone project. Academic advisors: Elenna Dugundji , PhD and Chris Caplice, PhD, 2022
    5 Nishitha Aemireddy and Xiyang Yuan, MIT-CTL Master of applied science in supply chain management, capstone project. Academic advisor: Chris Caplice, PhD, 2019
    6 Julia M. Collins and R. Ryan Quinlan, MIT-CTL Master of applied science in supply chain management, capstone project. Academic advisor: Chris Caplice, PhD, 2010
    7 Caroline C. Bleggi and Frederick (Qian) Zhou, MIT-CTL Master of applied science in supply chain management, capstone project. Academic advisor: Chris Caplice, PhD, 2017
    8 Bobby Martens, PhD and Yoshinori Suzuki PhD, IA State University, Department of Supply Chain Management at the College of Business, Iowa State University, 2011
    9 Grace Caza and Varun Shekhar, MIT-CTL Master of applied science in supply chain management, capstone project. Academic advisors: Elenna Dugundji , PhD and Chris Caplice, PhD, 2022
    10 Venkateswara Rao Bandaru and Emilio Dolci, MIT-CTL Master of applied science in supply chain management, capstone project. Academic advisors: , PhD Angela Acocella at MIT's Centre for Transportation and Logistics (MIT-CTL) and Chris Caplice, PhD, 2020

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