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Freight
May 23, 2022
High Contract Freight Rates Don’t Have To Set You Back

Retailers around the globe are bearing the brunt of current market conditions: rising costs, limited capacity, high consumer demand, and labor shortages. Despite the surge in revenue compared to last year, these factors are hindering profitability for many organizations.

But while market conditions may be hostile to retailers, high demand and low supply are giving contract carriers more power — and this seems to be the new normal, at least in the short term. Even so, there are ways for retailers to prevent high contract freight rates from harming their bottom lines.

Market conditions place the ball in carriers’ courts

Remember the first half of 2021 when consumer demand soared and supply chain bottlenecks wreaked havoc on transportation networks? Well, 2022 is looking like more of the same. A labor shortage of 4.6 million workers is plaguing industries from transportation to manufacturing, meanwhile consumer demand is skyrocketing and raw goods are low in supply.

With one in five container vessels stalled outside a congested port and the pool of truck drivers still not growing fast enough to meet demand, retailers are struggling to keep pace, let alone remain profitable. These conditions have also increased freight rates because with limited capacity, carriers hold the power to define the market.

Between January 2018 and Q2 2022, truckload freight rates rose 28.2%, reaching a record high — and those elevated rates are expected to continue for most of 2022. But this is only part of the problem: The transportation industry is also facing difficulties securing container shipments and scaling its labor force to keep up with demand — which ultimately means carriers are struggling to meet compliance.

To remain profitable, you must ensure your carriers deliver goods on time and in excellent condition. Now is the time to look inward at your transportation network and identify new carrier partners that can help you achieve these goals.

Prevent high contract pricing from harming your bottom line

In a carriers’ market, you have to be willing to explore new opportunities that empower your transportation and logistics team. There’s not a one-size-fits-all solution to optimize your supply chain strategy, but you can start with these tips.

  • Establish expectations with contracted carriers. When establishing carrier relationships, set expectations up front for pricing and service levels. Foster these partnerships to avoid high spot market rates you would typically pay when a carrier is non-compliant. Contract rates offer a reduced risk of pricing fluctuations, and help secure stability and long-term service partnerships.

  • Identify new opportunities. We all know that things don’t always go as planned. So to remain competitive, you must be agile. Source best-fit carriers outside your transportation network so you have additional options when a contracted carrier’s truck is unavailable. Smaller carriers like independent owner operators can aid your capacity needs at a more competitive rate. Adding non-traditional carriers to your routing guide can also diversify your transportation network, helping you keep pace with supply and demand.

  • Lean on carrier data. In today’s ever-evolving freight market, a data-driven freight strategy is a requirement. With a dataset of real-time linehaul rate benchmarking data, you can more easily source optimal carriers and secure competitive rates. Access to this data eliminates the need to rely on inflated spot market carriers or brokerage to identify carriers in your network.

At the end of the day, the goal of transportation is to move goods in the most efficient and cost-effective way possible. To do that — and remain profitable — you must cultivate strong carrier relationships, initiate new partnerships, and use linehaul rate benchmarking data to optimize your network. Untapped carrier opportunities exist — you just need to find them.

Schedule a demo of Capac-ID for fair-market pricing and best-fit capacity recommendations customized to your transportation network.

Heather Mueller

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