TECHNOLOGY: RATE MANAGEMENT
MANAGING ROLLERCOASTER RATES
What happens when a free market and a pandemic collide? BY AARON HUFF
F
reight rates began to plummet in March following stateissued lockdown orders aimed at containing the spread of COVID-19, and the downward trend continued through April to hit a fiveyear low before rebounding in May. Automotive, retail and energy shipments were among the hardest-hit sectors, but new pockets of demand surfaced in health care, pharmaceuticals and other essential goods. During the pandemic crisis, the volatility of rates has raised questions about the need for greater transparency into the costs and margins of freight transactions, particularly for third-party logistics providers (3PLs). All parties in freight transactions have access to the same historical market 60
commercial carrier journal
data for rates, but this data is compiled from averages and lacks the transparency of what actually goes into a rate for a specific contract or spot-market transaction. In the free market, the lack of cost transparency is a competitive advantage for any party in a rate negotiation. Companies on any side of a rate negotiation want to protect this information, especially since they work to create a lower cost structure than their competitors. In interviews with shippers, 3PLs and carriers, the parties shared a common agreement on the difficulty of providing transparency of rate and cost structures, as their variables change too frequently and are too different to be a reliable source of predictable data for making decisions. Rate transparency already is
| august 2020
commonplace in dedicated contracts between shippers and carriers in the form of cost-plus or gain-sharing models. Rate transparency in the spot market is a different challenge, since each transaction has a unique type of freight and variable attributes such as the number of stops, dwell times and lead time, said Alex Steurer, director of operations for ReedTMS Logistics, an asset-based 3PL based in Tampa, Florida. The asset side of the business, Reed Transport, has about 100 trucks and 500 trailers. “There is no common mold,” Steurer said. “Every lane and customer is different. There are so many variables that impact costing.” In today’s freight market, large shippers typically negotiate contracts directly with large and mid-size carriers and
