Each year, shippers running their annual truckload request for proposals (RFP) spend time speculating how carriers will perform on the lanes on which they are bidding. Typically, shippers give preference to asset carriers when awarding freight, while brokers are often regarded as backup options.
However, recent research suggests that considering brokers as a more strategic partner can be advantageous to shippers. The best strategy for shippers is to align the right portfolio of transportation providers (both asset carrires and brokers) to the right freight portfolio.
My research, as part of the MIT FreightLab, focused on how shippers can create the right procurement portfolio mix of spot vs. contract freight using a combination of both asset carriers and brokers. In a new study, using a large transactional dataset of shipments from 2015-2021 from dozens of shippers and thousands of their contracted, backup, and spot asset carriers and brokers,* I explore how the type of contracted provider (asset-based vs. broker) influences provider acceptance decisions for shipper network segments.
Brokers outperform for volatile demand lanes and surge volume
Shippers typically turn to brokers when contracted asset carrier capacity is unavailable. However, brokers are a capable first choice in many challenging settings, including volatile lanes where demand is unpredictable and when volume on a lane surges above expected demand.
Specifically, the research shows that brokers are better than asset carriers at covering volatile demand lanes – lanes where week-to-week offered volumes change considerably. In fact, shipments that are on historically volatile demand lanes are 2.3 times more likely to be accepted by brokers than by asset carriers. Demand volatility leads to high unpredictability, meaning carriers do not know how many trucks will be needed one week as compared to the last week. As asset carriers are capacity constrained and must keep networks balanced, they are more impacted by this unpredictability than brokers.
This suggests that during the RFP process, shippers should look not only to a lane’s previous total volumes, but demand patterns as well. On lanes with inconsistent or volatile demand, it could be beneficial to contract with a broker rather than asset carrier. Reserve asset carrier capacity for more predictable, consistent volume. Doing so increases shippers’ likelihood of maintaining contract rates with both provider types, rather than being forced to higher-priced backup or last-minute spot options due to contract carrier rejections.
In a similar vein, I explored the impacts of provider type on accepting surge volume – individual shipments offered to the contracted carrier above the awarded lane volume. While acceptance rates decline as surge volumes escalates for both provider types, surge shipments are about 2 times more likely to be accepted by a broker than an asset carrier. Short-term demand spikes are difficult for capacity-constrained asset carriers to cover quickly. However, brokers can more readily find immediately available capacity for unexpected surge volume.
Brokers’ ability to outperform on lanes with challenging demand patterns is driven by their ability to create a capacity pooling effect. By accessing a large pool of many carriers’ capacity, brokers can offer better flexibility and efficiency to meet demand fluctuations.
Brokers and asset carriers both value long-term relationships
A major discussion in transportation procurement is around the shipper-carrier relationship – how to build and maintain a long-term relationship that can have pricing and performance benefits. Some of my previous research looked explicitly at how fluctuating market dynamics impact this relationship. The new research explored how each provider type values long-standing relationships with the shipper, especially given that brokers have a reputation for being short-sighted and profit-driven over relationship driven.
The results show asset carriers and brokers equally value long-term relationships with shippers and prioritize freight for shippers with whom they have had long business relationships. Holding all else equal, there is no evidence one provider type places a higher value on long-term shipper relationships than the other.
For shippers, this means brokers should be viewed as effective strategic partners. Moreover, considering brokers typically are chosen to cover more challenging demand, this research highlights the critical role brokers play in shippers’ supplier base that should not be overlooked.
Recommendations based on research results
The goal of this research was to help inform shippers’ strategy for which service providers they should use and where they should use them. Based on the results, I offer three main takeaways:
- Brokers are better at covering volatile demand lanes.
- Brokers are better at covering surge shipments.
- Both asset carriers and brokers equally value a long-term relationship.
So, how should shippers adopt the right mix of asset carriers versus brokers?
Think about how demand patterns and freight volumes impact a provider’s operations and match demand with the service provider type that is best suited to serve that demand. Asset carriers tend to be challenged by lanes with volatile demand patterns. Brokers, however, are set up to offer efficiency and flexibility gains by pooling capacity for more difficult demand patterns.
On consistent demand lanes, both asset carriers and brokers provide high first tender acceptance rates. Asset carriers build balanced networks around consistent business and brokers use consistent demand lanes to offer predictable business for their carriers.
Finally, brokers and asset carriers both demonstrate a value to the shipper relationship, prioritizing freight acceptance for shippers that are long-term customers. This means shippers can feel confident moving toward strategic partnerships with brokers as well as asset carriers and recognize the unique value each can offer within their supplier base.
Additional research
This study is part of a broader stream of research on shipper-carrier relationships, procurement decisions, and creating the optimal portfolio of contract vs. spot transactions. Keep watch for additional new research on how market dynamics impact the shipper-carrier relationship and alternative contract designs, as well as a recent post about the hidden costs of ghost lanes.
*Dataset provided by TMC, a division of C.H. Robinson
