Want to lower freight costs? Look to your routing guide
Shippers • Published on August 28, 2020
With a tightening freight market and rising truckload rates, logistics teams are looking to get more reliable coverage and reduce freight costs. If you’re dealing with rising tender rejections on your contract freight, it might be time to take a closer look at your routing guide.
This post explores:
- The increased importance of backup coverage in tight markets
- MIT research that measures routing guide savings relative to spot rates
- A Convoy capability that can guarantee tender acceptance in your routing guide
- How a company saved an estimated $168,000 in freight costs in four months by upgrading its routing guide
- Ways you can achieve similar savings within your TMS
Rising tender rejections send load planners to their routing guides
This summer we’ve seen the freight market tighten, leading to a rise in tender rejection rates. The increase has been so dramatic, we’re currently past 2018 levels — a year previously thought to be the high water mark for tender rejection rates.
When a primary tender rejection occurs, the logistics team typically activates their routing guide, running through their list of backup carriers.
However, the listed backup rates can quickly become outdated and underpriced during market fluctuations. This leads backup carriers to reject loads for the same reasons primary contract carriers reject loads: current trucking rates exceed their original bid.
If your backup carriers fall through, your load will likely go to the spot freight market.
Spot increases freight costs more than backup
After your tender is rejected, both backup and spot coverage will cost more than your contract rate. However, there’s a significant jump in prices when you move from backup to spot. This jump gets a lot higher in tight markets like the one we’re in today.
A 2019 study from MIT’s Supply Chain Management program evaluated the prices between backup and spot over a four year time frame, capturing both tight and soft markets.
In the soft market of 2015 and 2016, backup prices in a routing guide were 9% higher than contract rates. Spot prices were 23% higher.
In the tight market of 2017 to 2018, backup prices increased slightly to 11.69% higher than contract rates. Spot rates spiked to 35.39% higher. That means that your load priced $1,000 for a contract rate would now $1,353.90 on the spot market.
This quickly adds up if you’re moving hundreds or thousands of contract loads per month and 20% of them are getting rejected and going to spot.
The takeaway from this data is clear: getting reliable coverage from backup carriers can lower your overall freight spend significantly.
How to get 100% guaranteed tender acceptance from a backup carrier
Convoy offers a way to get guaranteed freight coverage within your routing guide to minimize your reliance on the spot market. This is a guarantee that other backup carriers can’t match. We’re able to offer this guarantee by providing instant backup rates in your routing guide that reflect real-time market conditions. We call this service dynamic pricing.
Dynamic pricing is different than the static prices load planners typically see in their routing guide. Traditional backup rates can fall out of sync with shifting trucking prices, especially when the market tightens between the original bid date and the tender date. When this happens, backup carriers reject tenders for the same reason that primary carriers do: truckload rates rise higher than their original bid price.
[Related: 5 Ways Dynamic Contract Pricing is Helping Shippers]
Dynamic pricing takes a unique approach, leveraging our massive carrier network and our machine learning models to find the best truck available at a competitive rate. With this method, we can instantly generate rates that account for changes in freight market conditions and back our bids with a 100% coverage guarantee.
This can help you limit your exposure to spot market trucking, eliminating the need for freight RFPs and reducing your freight transportation costs.
How Convoy lowered a customer’s freight costs by an estimated $168k in four months
Since the launch of our dynamic backup service in 2018, Convoy has priced nearly half a million backup loads using the capability. Recently, we implemented dynamic backup with one of our food and beverage customers and measured the initial results over the first four months.
Prior to the launch of dynamic backup, Convoy covered approximately 200 backup loads per week for this company. This volume increased dramatically when we implemented dynamic backup in their TMS.
Relative to our average shipments per week, Convoy covered 3,000 additional loads in the first four months.
When analyzing the price paid per load relative to the industry benchmark, we saved our customer 6% compared to their backup alternatives and nearly 10% in comparison to the spot market. By calculating the premiums our customer would have otherwise paid, we estimate that Convoy’s dynamic backup offering saved our customer $168,000 in freight spend.
How to get guaranteed coverage and save on freight costs — from your TMS
Convoy makes it easy to achieve this kind of savings. We offer access to our dynamic backup offering from the convenience of your preferred TMS.
Our integrations allow us to surface instant backup price directly within your routing guide. We do this through an API integration, making the process seamless for your transportation planner.
Convoy has partnerships and integrations with leading TMS providers listed below.
Convoy can support any EDI-capable TMS, including homegrown TMSes. We offer free setup and customer support whenever you need it. If you’re interested in dynamic pricing and you don’t see your TMS provider listed, contact Convoy for more information.
Learn more about lowering freight costs and building a tender rejection safety net
Interested learning more about where backup and spot freight fits into your freight transportation strategy? Read our free white paper: A Safety Net for Tender Rejection.