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How Many Economists Does It Take To Save You Money on Transportation? (and Other Ways To Think About Third-Party Transportation Services)

In the long run, customized transportation services present a distinct advantage over mini-bids and other short-term measures for reducing supply chain costs.

There’s a famous quote: Ask five economists, and you’ll get five different answers. Six if one went to Harvard. 

So, it’s particularly interesting that more and more of the supply chain industry prognosticators share the same outlook for the supply chain: We have hit bottom.

Reaching a Truce

Supply Chain Quarterly sums up recent history: “The past few years saw high demand and tight capacity, putting carriers in the proverbial driver’s seat. But as demand leveled off and inventory rose, the market has swung back in favor of shippers.”

Now, Commercial Carrier Journal cites ACT Research’s “Freight Forecast, US Rate and Volume” as saying that April “likely mark[ed] the bottom of the spot rate downcycle.” And, the Council of Supply Chain Management Professionals State of Logistics Report predicts that “what we are seeing in 2023 so far has been all about getting back in sync with the fundamental change in the equation between shippers and carriers.”

It’s a classic economic power struggle. You beat me up for a while, then I take a turn beating you up. Bloodied and exhausted, we finally agree on a new truce.

Encroaching Bid Fatigue

Supply Chain Quarterly affirms many of the tactics we’ve been writing about recently, with “many shippers rethinking the annual bidding process and looking at other options to lock down transportation capacity…. These include shorter deals, greater use of the spot market and mini-bids.”

Not long ago, we wrote a three-part series on mini-bids (“What Are Mini Bids And How Are They Altering The Market?” “How Shippers Can Mitigate RFP Fatigue” and “Tired of Bid Fatigue? Get A Personalized Solution”). At the risk of repeating ourselves, there’s a proven, better alternative to these stopgap measures which seem preferable in the short term, but ultimately impact budgets as much as they do stamina. In the long term, third-party transportation services present a distinct advantage.

Mini-bids can be a useful approach to rapidly changing supply chains and conditions. Like a never-ending boxing match, though, they can also leave you and your vendors spent and in pain. There’s a balance between savings that can come from price-checking a market and the effort required to create RFPs, administer and score bids. 

It’s also true that all the activity of bidding out existing lanes can mask the greater opportunities that might come from structural changes such as consolidations, mode shifts or switching to third-party transportation services where volumes allow. 

When a mini-bid does make sense, our series linked above has handy tips for efficiently structuring the RFP, making use of existing data and approaching the process strategically. 

Playing the Long Game

As for spot rates, we’re more dogmatic in our opposition. It’s been proven by economists (so it must be right) that contracted rates will always beat spot pricing over the long term. Think about the stock market as an analogy. There will be times when you can beat the market with an opportunistic stock pick. But, if you do that enough times, sooner or later you come up a loser. 

Third-party transportation services are like the dollar-cost averaged mutual fund approach to investing. Over time, you’re going to get the best market returns, and you will also be spared the disruption and excess cost of constantly repricing. Just as important, you’ll have the ability to build deeper relationships with your suppliers, which becomes a strategic advantage when challenges hit.

The current economic predictions give us hope that more shippers and carriers are adopting our approach that true success is a long-run game. Another famous economist is remembered for saying “In the long run, we are all dead.” There’s some truth to that. But, even then there will still be freight to ship.

Third-Party Transportation Services Customized to Your Network

If you’d like to learn more about Morgan’s custom-tailored approach to third-party transportation services, control towers and inventory, let us know. We would be happy to learn about your goals and challenges. There’s no obligation for the initial consultation. Contact us today.

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