Freight shipping: how to develop a transportation strategy

Why develop a freight transportation strategy?

Shipping freight efficiently is easier said than done. With increasing consumer expectations, shifting trade policies, and a volatile economic climate, shippers need to build logistics programs that are both durable and adaptable.

Whether your business is building its supply chain or improving upon existing freight operations, there are a number of factors to consider. That’s why we assembled this guide that covers:

This page is designed to paint a complete picture of the truckload shipping process and provide a handy toolkit for shippers to reference as they design and manage their freight transportation strategy.

Choosing your freight partner

Is an asset-based carrier, broker, or digital freight network right for you?

Traditional freight partners, namely asset-based carriers and freight brokers, have transported America’s supplies for the past century. While assets and brokers still account for the majority of truckloads shipped in the United States each year, there’s also a third category of freight service provider that has emerged in recent years: the digital freight network.

Because shippers typically manage multiple carrier relationships and work with assets, brokers, and digital freight networks, it’s worth diving deeper into each type of freight partner. By understanding the differences in each freight partner, you can identify where each model fits in your transportation strategy.

Asset-based carriers

An asset-based carrier is a trucking company that owns equipment, including tractors, trailers, warehouses, and tools. Large asset-based carriers may own hundreds or thousands of trucks, and employ drivers to operate these trucks. They tend to work directly with shippers to transport freight.

Some shippers prefer to work with asset carriers because they have a reputation for reliability. Asset-based carriers can indeed be a reliable option when their fleet aligns with a shipper’s freight characteristics and regional needs. However, asset-based carriers are limited to the capacity of their own fleet. They have less flexibility outside of their core service regions, and may not be able to service loads in tight markets when demand surges. When supply is tight, they may broker out their loads to other carriers. In fact, a 2016 study by LaneAxis found that the largest asset carriers outsource over 40% of their freight to smaller carriers. To learn more, read our blog: 7 Things Shippers Should Know about Asset-based Carriers.

Freight Brokers

Traditional freight brokers help connect shippers with carriers, referencing a rolodex of carriers to find a trucker for tendered loads. In exchange for this service, brokers take a fee on each shipment they match. Because individual brokers are paid on commission, they have an incentive to maximize what they charge shippers and minimize what they pass on to carriers. An average brokerage fee ranges from 15-20%, but at times can go much higher than that.

Traditional freight brokers offer a number of strengths and weaknesses, and it’s up to shippers to determine how to best use brokers in their transportation strategy. To help shippers ask the right questions, here are 10 considerations when working with freight brokers.

Digital Freight Networks

According to Gartner, “A digital freight network is an open, fully connected freight marketplace that uses machine learning, automation and other software services to efficiently connect shippers and carriers.” Digital freight networks automate the matching of trucks to shipments through use of technology and data, drastically reducing the cost structure and the time it takes to find the most efficient truck for every load.

Convoy established this category when it was founded five years ago. Since then, digital freight networks have grown to become a viable alternative to traditional options. Convoy has hundreds of thousands of dry van and reefer trucks in our network. More than 75% of our volume is contracted via an RFP, and we’ve designed our network to provide contract, backup, and spot freight to deliver in any market condition.

In the recent volatile market conditions caused by COVID-19, shippers who partnered with digital freight networks were able to source more efficiently and reliably. In its April 2020 research note, Gartner reported, “Digital freight networks are helping shippers overcome COVID-19 challenges by delivering the reliability of an asset-based carrier and the flexibility of a broker.” Here are six examples of how shippers benefitted from using digital freight networks during COVID-19.

Traditional Providers vs. Digital Freight Networks

Which will provide better service?

The freight industry is built on relationships. Large asset-based carriers and freight brokers establish lasting relationships with shippers by providing high levels of service.

Some shippers may worry that the use of technology in a digital freight network takes the place of customer service with a human touch. However, shippers who work with Convoy have found the opposite to be true: by automating the freight matching process, Convoy can allocate more time and resources to customer service.

This proved to be the case when Anheuser-Busch awarded Convoy its Non-Asset Carrier of the Year award, a recognition typically bestowed upon traditional freight brokers. Today, Convoy is one of Anheuser-Busch’s largest over-the-road carriers.

Traditional vs. digital: why shippers may want both

Choosing whether to work with a traditional freight partner or a digital freight network doesn’t have to be an either-or decision. Many leading shippers choose to use both.

The largest shippers diversify their supply chain by maintaining relationships with multiple freight partners. Many work with a mix of traditional freight partners as well as digital freight networks. Shippers may choose to do this for several reasons:

  • Having multiple partners de-risks a shippers’ supply chain, so they aren’t dependent on any one provider to transport their freight.
  • Shippers may assign different primary carriers to different regions, depending on what lanes a carrier can service with the highest reliability or at the lowest rates.
  • Shippers may start small with a new freight partner — beginning with a pilot or a mini-bid — then expand the relationship after the carrier has proven their ability to deliver.

This third bullet points to how Convoy works with many shippers. We often start small, prove the benefits of our digital freight network, and increase our volume over time. This was the case with Procter & Gamble. We began by servicing some of their most difficult freight, and grew to be named P&G’s Carrier of the Year and Innovation Award Winner.

“Earn it through results” is a Convoy company value. We instill it in every employee we hire, and we apply it to the shippers we service every day.

If you’re a shipper who works exclusively with traditional freight models, it may be time to consider working with a digital freight network like Convoy. According to Gartner analyst Bart De Muynck, “Supply chain technology leaders looking to strengthen their technology and solutions for supply chain and operations to ensure sufficient transportation capacity should explore digitized freight platforms as a supplementary method to acquire capacity and get better freight insights.”

Tendering freight through contract and spot

Whether your goal is adaptability, efficiency, or sustainability, freight tender allocation is a core component of a shipper’s transportation strategy. This involves securing a mix of reliable primary carriers on each lane, a strong routing guide of backup options, and a spot strategy that minimizes risk.

There are a number of considerations for contract, backup, and spot. We’ll dive into each category and provide resources for shippers to learn more about each step of the freight tendering process.

Contract: securing primary carriers through an RFP

The majority of shipment volume is contracted through an RFP process. The contract locks in rates for a given period of time (typically a year), providing shippers with more predictable budgets and greater familiarity with the carriers servicing their lanes.

The goal of RFPs is to find the best carriers at the best value to create a reliable and predictable supply chain. However, contracted freight can fall short of this goal for a few reasons:

  • Overpromising from carriers and brokers – Carriers and brokers frequently bid low so that they win more business. However, when the market tightens and rates increase, carriers may reject the tenders they previously agreed to.
  • Oversubscription from shippers – To hedge against risks of tender rejection, shippers may contract more carriers than they need. In soft markets, shippers have a hard time living up to their primary commitments.
  • Lack of predictability – The freight market is subject to the whims of unexpected market forces. When securing 12-month contracts during fall of 2019, no one planned for a global pandemic and whipsawing demand in spring of 2020.

Shippers can avoid the pitfalls associated with contract freight by following a few best practices during RFP season.

  • Think in terms of bundles rather than individual lanes. A holistic network view and a strategic bundling of lanes can deliver lower prices, better service, and rich data and insights for shippers.
  • Use freight data to guide RFP decisions. Whether you seek to improve tender acceptance, make facility improvements, or update your lane strategy, data can help you make better decisions, faster.
  • Reduce uncertainty by evaluating tender acceptance rates. Convoy brings more predictability to RFPs by bidding on lanes that align with our network. That’s how we achieve a tender acceptance rate in excess of 95 percent, even in tight markets.

Following these guidelines should give you better performance from your primary carriers. Still, it’s important to build a roster of backup carriers when primary carriers can’t meet your needs.

Assembling a Routing Guide with Backup Carriers

As shippers select primary carriers to service their lanes, they also build out a routing guide with backup carriers ranked in order of preference based on RFP bid responses.

You typically consult these backup carriers when your primary carrier rejects a load. However, these backup carriers can also reject the load, adding up to higher prices and more time waiting for confirmation that your loads are covered. Worse still, if none of your backup carriers accept, you’re forced to the spot market which means higher rates and greater risk.

To address this scenario, Convoy developed Dynamic Backup. This is an automated system that provides real-time market rates with guaranteed coverage for loads. Loads tendered with Dynamic Backup are instantly bookable, meaning that shippers no longer need to wait hours for a carrier to accept or reject a load. This feature is built into Convoy.

Understanding Spot Freight Rates

The load boards that make up the “spot market” connect shippers with carriers. Unlike fixed contract rates, spot rates adjust dynamically based on the freight market, reflecting full truckload (FTL) prices that can change by the hour.

Although swings in spot freight rates tend to grab logistics industry headlines, spot makes up only about 1/5th of the US trucking market according to FreightWaves.

A shipper’s transportation management strategy will typically include primary and backup contract carriers that help reduce exposure to spot market volatility. However, there may be times when tendering via the spot market is necessary or even advantageous to the shipper. You can read our overview of what drives spot freight rates to learn more.

Managing Freight with a TMS

Managing freight is a complex and dynamic process. Thankfully, there are tools to help shippers manage their supply chain logistics and operations. One example is a transportation management system, or TMS.

A TMS can help shippers move freight with greater efficiency and reliability. There are several ways a TMS saves time for shippers. A TMS also provides a single, centralized source of view to provide insights into a shipper’s freight network.

Convoy integrates with any TMS that supports EDI message exchange. Through EDI interactions, Convoy can accept and reject shipments, send basic shipment status information (such as pickup and drop-off appointment set, arrival at pick up and drop-off locations, departure from pickup and drop off location, ETA at consignee’s location, and more), and manage invoicing. In addition, Convoy integrates its Dynamic Backup into leading TMSes including BluJay, MercuryGate, and others.

Through integrations with supply chain visibility solutions like FourKites, Project44, MacroPoint, and 10-4 by Trimble, Convoy can provide real-time location visibility within leading TMSes.

Gaining visibility into your supply chain

Supply chain visibility gives shippers awareness of how their goods move through a supply chain. This includes tracking each shipment’s location and the facilities it passes through. It also captures the bigger picture of a supply chain’s performance, helping shippers spot trends and anomalies in the data.

Leaders in the freight and logistics industries have a growing interest in software and tools that bring visibility into their supply chains. Gartner surveyed the attendees of their 2019 Supply Chain Planning Summit. Their findings: the #1 and #2 categories supply chain executives plan to invest in over the next 6-12 months are data analytics and supply chain visibility software.

Why shippers need real-time visibility

Today, many shippers lose visibility of their freight as soon as a load leaves the dock. This can lead to a number of problems:

  • Incidentals are incurred without the ability to identify root cause.
  • Operational issues go unnoticed without a process for identifying patterns in problematic facilities.
  • Key performance metrics including on-time pickup (OTP) and on-time delivery (OTD) are inaccurate due to manual reporting.

Given the advancements in freight technology, this loss of shipment visibility should be a problem of a bygone era. Nearly all drivers carry GPS-enabled smartphones and most trucks must have electronic logging devices (ELDs) operating while they haul. That’s why we believe that every shipper should expect real-time visibility.

Using Data to Spot Savings

Convoy collects over 1,000 data points on each shipment. Since 2015, we’ve collected and analyzed over 16 terabytes of shipment and operations data. For context, that is the equivalent of over 104 million Microsoft Word documents. With truckloads of data, we can provide shippers insights related to shipment volume, wait times, incidentals, facility ratings, and much more.

Companies who ship with Convoy can improve their facility performance with supply chain visibility. With automated reports, dynamic tools, and custom insights, we’ve helped shippers:

  • Reduce detention costs at problematic facilities
  • Uncover the root causes behind spiking incidentals
  • Identify why similar facilities in the same region have different operational performance

Supply Chain Consulting from a Digital Freight Network

The shippers we work with receive dedicated account managers along with access to our team of data scientists. We leverage our comprehensive data on nationwide lanes, locations, and drivers, and combine this with institutional knowledge and familiarity with the unique needs of our shippers to provide meaningful, actionable insights. This combination of data, visibility, and account service provides shippers with a form of supply chain consulting that’s unique to a digital freight network.

For a more in-depth picture of how supply chain visibility can improve efficiency in your operations, download our white paper: Supply Chain Visibility and the Digital Freight Network.

Ensuring you work with quality carriers

When you evaluate freight partners to work with, it’s important to look beyond the lowest price offered in an online freight calculator. Carrier compliance and safety can materially impact a shipper’s bottom line.

To ensure you work with quality carriers who will perform well and deliver your goods safely, here are a handful of suggestions to follow to vet brokers and 3PL partners for quality.

Understanding quality and compliance risks

Shippers face several compliance risks when it comes to working with freight partners. These risks fall into four broad categories: legal, financial, service, and reputation.

  • Legal: Accidents when the shipper is pulled into a lawsuit. This can result in increased insurance costs, defense costs, and settlements or awards against defendants.
  • Financial: Claims can cost shippers more than just the value of the property being transported. Additionally, incidentals can lead to chargebacks and fees, remanufacturing and packaging costs, and lost time and missed sales opportunities.
  • Service: Delays or missed deliveries can lead to a longer time to fulfillment, which in turn leads to increases in inventory holding costs.
  • Reputation: Customers may distrust vendors who miss delivery windows, leading to diminished brand perception and a loss of future sales.

Shippers can follow best practices in carrier compliance management to hold service providers accountable and mitigate safety risks. FreightWaves and Convoy compiled a list of five compliance and safety questions to ask prospective freight partners prior to tendering loads with them.

Quality and Performance Across Asset-Based Carriers, Brokers, and Digital Freight Networks

Large asset-based carriers have a better reputation for quality and performance than freight brokers. However, the numbers show that Convoy’s digital freight network provides safety and performance that exceeds the nation’s leading asset-based carriers.

This quality of service can be attributed to the years spent investing in the growth of our carrier network, implementing industry-leading safety, quality, and compliance checks across multiple services such as FMCSA, SaferWatch, RMIS and TIA Watchdog to ensure our carriers are compliant, reliable, and safe.

A CSCMP Hot Topic on innovation in risk management shows that shippers who implement real time data and technology into risk management practices can lower supply chain costs and attain higher levels of service. The good news – this service is deployed across Convoy’s nationwide network and is available today to all Convoy customers. Our digital freight network is paving the way to safer roads with Convoy’s predictive crash capability. Through use of machine learning and automation to qualify safe drivers into our network, Convoy achieves 16% fewer accidents vs. the industry average.

Shippers can dive deeper into quality and compliance by viewing our webinar: The Hidden Costs of Booking the Cheapest Carrier.

Becoming a Shipper of Choice

During tight markets when demand outstrips supply, carriers can afford to be selective about the shippers they choose to work with. By adopting carrier-friendly practices, companies can position themselves as a shipper of choice. Doing so can help shippers maintain reliable capacity and predictable prices during market shifts.

Adopting carrier-friendly operations

Operating a carrier-friendly facility isn’t just a feel-good thing to do. It can improve performance, reliability, and efficiency. Here are a few practices to consider adopting to become a shipper of choice:

Consider carrier wait time and driving hours when scheduling shipments
Manage expectations and build trust with carriers
Monitor carrier facility ratings and respond to carrier feedback
Shippers who work with Convoy receive insights and analysis about their freight operations, including detailed facility ratings and carrier reviews. Supply chain leaders can use this data to inform where to invest in facility improvements.

You can read more on our guide: How to become a shipper of choice.

Convoy recognized CHEP, a leading provider of pallet and container pooling services, as a shipper of choice because they used insights we provided to improve their facility operations. This was beneficial to CHEP, to Convoy, and to the carriers who work with us.

Read our interview with CHEP to learn more about how they became a shipper of choice.

Aligning freight operations with sustainability goals

As many businesses increase their focus on environmental impact, logistics teams are being tasked with contributing to the triple bottom line – people, planet, profit. Despite this, a 2019 Gartner study found that “30% of supply leaders have no or low maturity sustainability initiatives.”

There is a lot of ground left to cover, which is why it’s important that technology providers and shippers alike partner to tackle environmental impact objectives.

Reducing empty miles in freight

One of the most common examples of waste in the freight industry occurs when truckers drive empty. These miles are referred to as empty miles, non-revenue miles or deadhead miles.

Empty miles typically occur when there are no nearby loads for the driver to pick up that are headed in the same direction as the driver. This translates to wasted fuel, lost driver time, needless emissions and increased costs for shippers.

According to Frost & Sullivan, empty miles are ingrained in the methods of traditional freight brokers, and they’re a major area where supply chain leaders can cut waste.

Convoy launched Automated Reloads to reduce the amount of time drivers haul empty trailers. Fast Company recognized this breakthrough as a World Changing Idea, and reported that, “shipments using the program were seeing a 45% drop in carbon emissions.”

Using Data to Inform Sustainability Strategy

Every company who ships with Convoy receives a monthly business report with visibility into cost savings, time savings, service levels, and carrier performance. Included in this report is a section dedicated to Sustainability and the reduction of carbon emissions. The thinking: by keeping sustainability top of mind, shippers can be better equipped to meet related goals.

Transportation leaders use the insights included in these reports to inform their shipping decisions and reduce their emissions across their freight networks.

Learn more about sustainability in freight.