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To Contract or Not to Contract? That is the Question.

To Contract or Not to Contract? That is the Question.

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The freight market continues to carve out new records, and last week is no exception. Tender rejections remained above 25%, which is no surprise because it’s been there for months. And reefer is even higher at 50% rejection. All that said, the big surprise is that DAT reported contract rates ($2.76 per mile) higher than spot ($2.62 per mile).  

So what does this mean? With tender rejection rates at all-time highs, contracted carriers are passing on contracted freight to accept more lucrative business. And in some cases, contracted carriers who pass on contracted freight pick the same load back up in spot at a higher rate. This very practice negates all the hard work done upfront through the RFP process, and bears one key question… Why should shippers spend quality time and money locking in contracted rates when they may not be honored? Think about it, no other industry would allow for this practice. Once pricing is negotiated and agreed upon, the vendor is held to the pricing commitment or they are dropped as a strategic partner. Ask any shipper how long it takes to plan and execute a typical freight RFP-- months, not to mention costing millions in human capital and operational expenses each year.     

Large carriers are pushing for shippers to renegotiate contracted rates sooner than normal to level-set pricing, so they can take advantage of current market conditions and lock in higher rates. Unfortunately, for some shippers, freight rates will be locked in for a long period of time and not adjust as market conditions stabilize. To overcome this, some shippers are negotiating shorter-term RFPs, which help maintain pricing but add more work to manage more contracts throughout the year. While others are looking to supplement or replace contracted freight because they’re sick and tired of how contracted freight has failed to deliver on promises of reliability.  

New technology, called OTS, empowers shippers by providing immediate access to compliant, high-quality carriers who bid on freight in real-time, which results in fair market pricing based on current supply and demand. OTS is 100% configurable so shippers have complete control on how to leverage the technology based on individual lanes needs. For example:

  1. Shipper A needs to understand “true market cost” on a specific lane before submitting RFPs because generic rate data doesn’t tell if they have over or under-payed, so they turn on OTS for real-time rate data. 
  2. Shipper B’s contracted carriers continue to reject specific lanes, so to help supplement primary carriers OTS is turned on to eliminate loads hitting the costly spot market. 

To learn more about OTS, click here.

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