Is it Time to Rethink Shipper-Carrier Contracts?

The way freight is booked and delivered is changing rapidly. E-commerce is driving more stringent delivery schedules and more visibility into the supply chain. Some people believe that the move toward more dynamic, technology-driven interactions between shippers, carriers, and brokers could mean changes in the traditional way carriers work with shippers on contract freight.

This was one of the things that came out of my research for the upcoming July cover story on how technology is changing the way carriers, shippers, and brokers connect.

A big part of that is various levels of automating freight-matching, including much more visibility into the process, and even automation in pricing.

Some think it could mean changes in the long, drawn-out RFP and contract bidding process.

“Are we going to have year-long bid cycles like we did in the past, where you commit to freight and price for a year, or are we going to go into more seasonal bids, every three or six months, and have a very variable cost structure?” mused Robert Brothers, manager of product development for McLeod Software.

Kate Kaufman, director of account ops at Uber Freight, told me that looking at contracts is a hot trend.

“As we see more entrants like Uber Freight into this industry, based on our pricing rates that are comparable to contract rates without the contract, I think it’s causing people to rethink the value of contracts,” she said. “An RFP can take months, and you have teams managing that, and the manpower that goes into it is substantial. Something like 50% of the volume of RFPs can be invalid and void by the time you’re six months into the contract.”

Supply chains are becoming more and more dynamic, she said, so the ability to rely on a contract diminishes. “And what is this going to mean if companies like Uber Freight come in and say we can give you rates and guarantee that capacity; do you have need for a contract anymore?”

The annual bid award process is not serving this more dynamic price environment well, said J.J. Singh, founder, chairman and CEO of EKA Solutions, which is rolling out the EKA Omni-TMS cloud-based system to allow brokers, carriers, and shippers to easily assign and track loads, including back-end billing and financial functions.

“I don’t think [the traditional contract bid process] is outdated, but it needs continuous review and oversight. If you find the market is changing, you have to move from contracted to spot. No longer is contract freight kind of the dominant [method]. You need to be able to respond quickly, and technology allows us to do that.”

Claude Pumilia, president and CEO of DAT, said he can see how increased technology could help the spot market be used in an increasingly effective way, “but there are some significant other reasons why you want long-term contracts. There’s a tension there – the ability to be dynamic and have more clarity on the key data you need to decide what the rates should be, and the business tension of being able to plan your business. Locking in a contract for nine or 12 months is still a good way to do that.”

Pumilia predicts we will see more experimentation and creativity in how contracts are handled, now that shippers, fleets and brokers are gaining more access to the kind of data the need to be able to make a more informed choice, “whether it’s historic rates, or I think you going to see more predictive rates in the marketplace, which will lead to some people being more creative in these business relationships.”

Avery Vise, VP of trucking research for FTR Associates, summed it up this way: “It's essentially moot to think of digital freight-matching in the old spot vs. contract paradigm.” One of the benefits of digitization of freight-matching is that you can build robust carrier selection criteria into the algorithms, he said. “Admittedly, this would be evolutionary. It won't happen in two or three years, but that’s where we are headed.”