Elephants or Goldfish? Shipper-Carrier Memory Impact on Relationships, Reciprocity, and Dynamic Freight Markets

Truckload freight market cycles are nothing new for seasoned transportation practitioners. Yet these swings between periods of over- and under-supply (soft and tight markets, respectively) create considerable challenges and costs for shippers and carriers alike and put stress on their relationships. These professional relationships matter and require intentional communication and collaboration to build mutually beneficial arrangements and foster trust.

This raises questions about loyalty and reciprocity in dynamic market conditions: How are long-term relationships between shipper and carrier valued in the face of these market dynamics? Is good behavior from one side during market conditions favoring that party reciprocated by the other when markets shift?

These are the central questions of my research at MIT’s FreightLab. In a set of ongoing work, I explore whether carriers have long or short memories during tight markets for shippers who have had good performance in the previous soft market. Are their memories more like elephants or goldfish when it comes to acceptance rates? In addition, I explore what shippers can do during tight markets to encourage carriers to maintain acceptance rates.

Research methodology

To answer these questions, I analyzed four years of truckload transactions from dozens of shippers and thousands of their contracted asset carriers and brokers from September 2015 to May 2019.1 The data covered two complete market periods: a soft market from February 2016 to July 2017, and the tight market from July 2017 to January 2019.

I studied shipper-carrier pairs across both time periods, specifically measuring shippers’ contract price competitiveness compared to lane benchmark prices, shippers’ load tendering patterns, lead time, and facility detention times. Then I modeled how these factors impacted the contracted carriers’ load acceptance rates.

How market conditions influence carriers’ decisions

The results show that in tight markets, carriers have short memories. That is, they are not considering shippers’ previous soft market pricing, tendering behavior, or other performance metrics when making freight acceptance decisions.

But importantly, in tight markets, carriers do respond to shippers’ current performance. The most significant indicator for a contracted carrier’s acceptance during a tight market is the contract price competitiveness (relative to current lane-specific market benchmark rates). In tight markets, carriers are capacity constrained, higher demand can throw networks out of balance, and operating costs rise. As a result, carriers prioritize freight that is priced appropriately to cover these additional costs.

After contract price competitiveness, the next most significant predictor of acceptance rates is demand consistency and frequency during tight market conditions. Inconsistent and infrequent demand is difficult to plan for and more likely to disrupt carriers’ networks. With higher total volumes, carriers are less able to absorb the uncertainty that unpredictable demand introduces to their networks. Thus, more predictable lanes are prioritized and experience higher acceptance rates.

Finally, lower drop-off facility dwell times during the tight market are correlated with higher acceptance rates. Delays at drop-off facilities have a greater impact on carriers’ ability to get to their follow-on loads on time. If carriers are consistently delayed at a shipper’s own facilities or their customers’ facilities, they deprioritize that shipper’s freight when markets are constrained.

What can shippers do?

A key takeaway of this research is that shippers need to keep contract prices competitive during tight markets. Shippers trying to secure low long-term contract rates before markets tighten are going to see poor performing route guides in the tight market. Opportunistic pricing ultimately will not outperform sticking with proven providers and strategies. Therefore, shippers should monitor important lanes during tight markets and increase rates to compete with the market. Regular monitoring and price updates will be crucial to maintaining route guide performance in tight markets.

Do relationships matter?

Although market conditions may influence carrier behavior, relationships do still have a role to play. While both short- and long-term relationships struggle to hold commitments during tight markets, the data show that all else equal, carriers do prioritize shippers with which they have long-term relationships. However, the shippers that see this benefit are also the ones who take some action to help alleviate carriers' challenges during tight markets.

Beyond route guide acceptance, there are many reasons why trusted relationships matter. They can drive mutual success by increasing efficiencies, reducing fraudulent activity, identifying new opportunities, and much more.

A natural—and reasonable—next question is what about shippers? During soft markets, do they have long or short memories and reciprocate good performance carriers exhibited during previous tight markets?

This is ongoing research at MIT’s FreightLab. Be on the lookout for updates on this work to come.

1. Dataset provided by TMC, a division of C.H. Robinson

Dr. Angi Acocella
Research affiliate at MIT Center for Transportation & Logistics Postdoctoral researcher, Tilburg University
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