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May 22, 2017 2:30 AM, EDT
TL Contract Rates Flat in 1Q, Bid Process Irks Some Execs
Charles Danko

This story appears in the May 22 print edition of Transport Topics.

Annual truckload contracts were relatively flat in the first quarter, ranging from a 3% decline to a 3% increase in rates year-over-year, according to trucking executives. But if the market tightens this year, then some executives believe shippers who pushed aggressively on prices would have a difficult time finding available trucks.

Truckload carriers blamed a poor contract environment for lower quarterly profits after shippers took advantage of companies competing to keep their trucks full. Consequently, motor carriers often lowered prices in a race to the bottom.

“The dynamics of the industry in the first quarter were set up by the rebidding of contract rates with shippers in the third quarter and, in some cases, the fourth quarter of 2016. As our customers’ corporate procurement organization saw excess capacity available in the marketplace, this put downward pressure on contract rates, which we have carried into the first half of 2017,” said Chris Lofgren, CEO of Schneider, which ranks No. 7 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.

Other transportation and logistics executives echoed Lofgren’s analysis and added that shippers aimed to lock in savings one final time before the electronic-logging mandate forces a rate hike in 2018.

“Let’s take a customer who was on an annual contract starting in April. What they ended up doing in some cases was they began the bid process earlier, say in November, and moved up the start date to February. And because the environment was so soft, truckload carriers began to negotiate against themselves in a two-round process,” said Stephen Silverman, chief operating officer at Raven Transport, a dry-van carrier based in Jacksonville, Fla.

Transplace, which ranks No. 49 on the Transport Topics Top 50 list of the largest logistics companies in North America, estimated that shippers saved between 2% and 6% on average this year compared with 2016. But in general, other executives noted the contract rates ended up closer to the 2% number, based on conversations with more than a dozen fleets and 3PLs since late March.

Transplace managed more than 200 bids in truckload, less-than-truckload and intermodal this year, the company told TT.

“Shippers had a pretty good shopping list of high-quality carriers in the bid to choose from this year,” said Ben Cubitt, Transplace senior vice president of engineering and strategic carrier management.

However, some trucking companies privately expressed frustration at the impression that more shippers prioritized saving money — using phrases such as “price aggressive” — over strong relationships.

Cubitt disagreed.

“In no case are shippers going at the lowest price possible, or even at 90% of the lowest cost available. Shippers typically keep north of 60% of the possible savings,” he said. “We see shippers that exclude lanes from bids because they do value incumbency. If another carrier is 2% or 4% lower, most shippers won’t change just to save every dollar. We run a lot of scenarios where we favor incumbents by 5% or 10%.”

If the market indicates that there are a lot of great carriers that can do it for 10% or 15% less, Cubitt added, then shippers will react and make the switch.

But if conditions tighten later this year, then the “price aggressive” shippers may be a at loss finding available capacity.

“The carriers are trying to appease their customer base to remain relevant and will start eliminating their customers on the bottom. Those customers will have to go further down their list to find someone to cover their loads,” said Ryan Daube, founder and CEO of AFN Logistics, which ranks No. 32 on the Transport Topics sector list of top freight brokerage firms in North America.

“Carriers definitely have memories like elephants,” said Mike Eggleton Jr., vice president at refrigerated carrier Raider Express. “There are definitely true partner shippers out there. If I’m at the supermarket on a Sunday and I get a call from one of our true partners, then I’m going to answer that call and we’re going to do everything we can to help them out.”

The annual bid process isn’t the only metric that trucking companies use to gauge which shippers get priority. Eggleton said those that pay quickly and don’t detain drivers excessively will get faster service than others, adding that the quality of the relationship carries currency.