Keep your freight shipping budget on track: The top reasons for route guide failure and how to avoid it

Preventing truckload budget overrun

For shippers hoping to get the best tender acceptance from your truckload routing guide, research has identified several key factors tied to truckload budget overrun. With factors like market conditions and high lane volume variation playing a role in route guide failure, we examine when to combine unpredictable lanes and freight. We also examine the potential of freight mini bids for underperforming truckload lanes to help you meet your truckload transportation budgets.

Why transportation budgets fail: responding to freight market insights

When transportation budget failures occur, it is most often due to a combination of factors rather than a single influence. Demand variability is directly correlated to first tender acceptance and paying what is planned. Lanes with inconsistent volume are a major contributor to shippers’ potential truckload budget overrun. As a result, these lanes require a higher degree of attention and insight into freight market trends during the budgeting process to reduce these potential budgetary pitfalls.

With this group of widely variable influences impacting whether shipper budgets are met or missed, one important question emerges: Can the quantity of bidding events during a budget period improve your route guide shipping performance?

Successful route guide shipping

As standard process, shippers produce their freight requirements to form a request for proposal (RFP) for their routing guide. The RFP then proceeds to bidding with the goal of awarding forecasted freight volumes that will garner nearly perfect first tender acceptance when executed. However, variance from the original plans across a transportation provider’s shipper customers means the transportation provider must often place drivers and trucks in unplanned markets with unplanned volumes. This results in a struggle to accept tenders because drivers and trucks are not in the markets that were planned at the time of the RFP and awards.

Shippers’ demand plans are a forecast and can shift throughout year. The one predictable thing about forecasts is that they are always changing—it’s simply a question of how far from the original projection they ultimately change. These variances can often be more than transportation providers are able to plan for and flex against. Key to improving first tender acceptance is predictable demand. Where pinpointing demand is difficult, a routing guide strategy with a measure of elasticity as well as a budget with some built-in variance should be established.

Elasticity is also critical when it comes to responding to market conditions. This was proven when MIT researchers examined USA truckload transactional data from seven clients across four years. The data, supplied by TMC, spanned Q3 of 2015 through Q2 of 2019 and included shipments that were over 250 miles in length and dry van shipments. Also noteworthy, the seven shippers used for the study were selected because their RFP cadence was clear and patterned, in contrast to other shippers in the dataset who had distinctly less clear RFP cadences. Though the number of shippers included in the study was relatively small, MIT researchers determined that due to the size of the transaction dataset and the diversity of lanes (O-D pairs) this is still a statistically relevant subset.

Market condition is the most significant indicator of the probability of a truckload budget overrun.

From the data, researchers were able to discern that market condition is the most significant indicator of the probability of a truckload budget overrun. Whether the current freight market trends toward over or under supply, or whether it is in a period of transition, will impact your ability to remain within budget. During periods of transition from a soft (oversupplied) market to a tight (undersupplied) market, there is a 2.5 times increased likelihood of truckload budget overrun than during the converse, periods of transition from a tight to a soft market. In a soft market, there was an 81% probability that plans would be on or under budget. In a tight market, that probability was 52%. Beyond those initial findings, it was noted that the combined effect of additional unfavorable attributes to a tight market further increases risk of running over plan.

Another key factor in predicting shippers’ budget success is lane volume variation. High lane volume variation is the second-highest indicator of potential budget overruns. Lanes with inconsistent volume will require a higher degree of attention during the budgeting process to reduce the possibilities of budget overrun. Attending to underperforming lanes increases the likelihood of first tender acceptance and overall budget performance.

High lane volume variation is the second-highest indicator of potential budget overruns.

3 factors that impact truckload budget overrun, and how to respond

From the MIT research, we can determine there are three primary issues that influence tender acceptance performance:

  1. Market cycle: Whether the market is soft (over supplied) or tight (under supplied) or in a period of transition.
  2. Planned demand patterns from shippers that don’t fully materialize.
  3. Tender patterns that closely replicate the procurement event plans result in better performing routing guides.

We can plainly see that route guides require ongoing maintenance to be successful. In addition, freight mini bids, as part of an ongoing engagement strategy throughout the year as opposed to a yearly or quarterly bidding event, are an important strategic component for lanes with unpredictable volume.

Freight mini-bids: an important tool

Maintaining a route guide by attending to underperforming lanes through collaborative work with suppliers or mini-bids will produce results that outperform leaving the underperforming lanes alone.

The following recommendations will allow shippers, as well as transportation providers, to maintain transportation budgets:

  • Build resiliency into a route guide for all markets, but especially for tight markets
  • Where possible, smooth out shipment tender patterns to improve predictability of freight costs
  • Plan for markets that are out of balance with specific route guide and spot market strategies
  • Address underperforming lanes with increased frequency freight mini-bids or active engagement with primary suppliers

Your source for route guide shipping strategy

Maintaining a route guide increases the likelihood of meeting a truckload transportation budget. Mini-bidding underperforming truckload lanes helps ensure truckload transportation budgets will be met. Engaging C.H. Robinson experts in your transportation strategy and planning brings researched and experienced insights that lead to the highest possible success in a transportation plan.

Steve Raetz, Director of Research and Market Intelligence, C.H. Robinson
Mathew Leo, Principal Analytical Consultant, C.H. Robinson
Fiorella Mete, PhD, Supply Chain Engineer, TMC, a division of C.H. Robinson
Andrew Welch, Global Account Manager, TMC, a division of C.H. Robinson
Venkateswara Rao Bandaru, MIT-CTL Master’s of Applied Science in Supply Chain Management Student
Emilio Dolci, MIT-CTL Master’s of Applied Science in Supply Chain Management Student
Angela Acocella, PhD, Postdoctoral Researcher, Tilburg University
Chris Caplice, PhD, Senior Research Scientist, MIT-CTL

About Us

C.H. Robinson solves logistics problems for companies across the globe and across industries, from the simple to the most complex. With $30 billion in freight under management and 20 million shipments annually, we are one of the world’s largest logistics platforms. Our global suite of services accelerates trade to seamlessly deliver the products and goods that drive the world’s economy. With the combination of our multimodal transportation management system and expertise, we use our information advantage to deliver smarter solutions for our 100,00 customers and 96,000 contract carriers. Our technology is built by and for supply chain experts to bring faster, more meaningful improvements to our customers’ businesses. As a responsible global citizen, we are also proud to contribute millions of dollars to support causes that matter to our company, our Foundation and our employees.

About TMC, a division of C.H. Robinson

Global supply chains are growing increasingly complex. Businesses need the latest technology and industry expertise to advance and stay ahead of the competition. At TMC, a division of C.H. Robinson, we understand what makes supply chains faster, stronger, and more efficient. As a leader in global logistics management, we combine industry expertise with our global technology platform, Navisphere®, to support the world’s most complex supply chains. Our logistics experts are located in Control Tower® locations around the world: Amsterdam, Chicago, Monterrey, São Paulo, Seattle, Shanghai, and Wroclaw. This Control Tower® network, supported by our technology platform, connects our customers to their suppliers and supply chain partners. Our customers leverage these capabilities to manage their logistics in over 170 countries across all modes of transportation.

About MIT Center for Transportation & Logistics

The MIT Center for Transportation & Logistics is a dynamic solutions-oriented environment where students, faculty, and industry leaders pool their knowledge and experience to advance supply chain education and research. As an independent center, CTL coordinates more than 100 supply chain research efforts across the MIT campus and around the world and educates students and corporate leaders in the essential principles of supply chain management. Ever since its inception in 1973 CTL has strived to change the way the world works by innovating essential industries and services through supply chain management.