How does a shipper ensure a carrier is available when needed? Over the last couple of years, a term has arisen to paint a picture of a company that checks the boxes of an organization that a carrier wants to work with: shipper of choice.
In 2019, we asked a panel of experts what went into becoming a shipper of choice. They noted that carriers covet considerations like speed, profitability and digital connectivity.
A lot has changed since 2019 — with shippers and carriers alike dealing with dramatic demand swings during the pandemic and 2020 — but maybe not when it comes to shipper of choice.
“Shippers can’t necessarily do anything about the demand patterns that have come from the pandemic,” said Angela Acocella, a research assistant and PhD candidate at the Massachusetts Institute of Technology Center for Transportation and Logistics, whose recent research has looked at reciprocity between carriers and shippers.
What the pandemic did was underscore how difficult the process of freight procurement can be, Acocella said.
“It’s not that different from other market cycles,” she said, noting that while some markets experienced a very hot trucking market, others saw a downturn in their demand for freight.
“You can always get a truck. It’s just a matter of price.”
Partner and lead for analytics in the Americas at Kearney
In fact, the pandemic has made the idea of shipper of choice more important than ever, according to Michael Zimmerman, partner and lead for analytics in the Americas at Kearney.
“During the price spikes of 2018, when capacity was down and then demand was up, and during COVID — same thing — shippers known to have poor conditions didn’t get the capacity,” Zimmerman said. “And then the only way to get the capacity was to pay more.”
For the shippers looking for freight and dealing with a tight market, the ideas underscoring shipper of choice still apply, Acocella said. And others agree, even if the phrase itself might be falling out of favor.
“I would say that term is a bit fatigued,” U.S. Xpress Chief Revenue Officer Justin Harness said in an interview late last year. “But there are certainly things that shippers can do to become more attractive to the carrier community.”
Does a history of higher payments matter?
In a research paper published last year, Acocella completed an analysis to determine if carriers are more likely to pick up a contracted shipper’s freight in a tight market if the shipper had paid a higher price in a soft market.
“Are [carriers] remembering their shippers’ previous performance or pricing when they’re making their acceptance decisions?” she said in describing the research goal.
The research considered a shipper’s performance across a few different variables including contract pricing, the consistency of volume tendering, tender lead times and dwell time.
Acocella and her co-authors found that when the demand for freight exceeds the supply from carriers, the carriers are “not really considering what their shippers’ previous market behaviors were,” she said, noting that the previous market means the preceding period of low demand for freight. “But really, they’re responding to the current performance.”
This means shippers could pay more in a soft market, but that won’t, on average, help them procure freight when the market tightens. Higher rates help shippers procure freight, Acocella said, but only if they’re competitive in the tight market.
Money can buy capacity, but a history of shared business helps
The variables that matter to shippers haven’t changed that much as a result of the pandemic.
“You can always get a truck,” Zimmerman said. “It’s just a matter of price.”
But the ability for a shipper to find capacity when the market is hot can come down to more than just price, Acocella said.
If a carrier has a long-standing relationship with a shipper, the carrier will have more information to determine if it should…
Read More: What does shipper of choice mean in 2021?