CAI Transportation Blog

Natural disasters and the spot bid market: how to avoid paying too much

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When it comes to ensuring adequate capacity for their goods, supply chain managers have various tools at their disposal. If they’ve planned ahead and know exactly what needs to go where (and by when), contracting with carriers in advance is often the best way to ensure peace of mind and a seamless experience.

However, the shipping process doesn’t always fit neatly into a plan. Suppliers can miss deadlines, throwing the whole process off by several days. Infrastructure problems can cause trucks to need to change their routes, altering the timeline. Orders may be increased, which means supply chain managers need to find more capacity on short notice. In these cases, existing transportation contracts may not account for the full scope of supply chain needs, and it may be time to turn to the spot bid market to fill in gaps.

What are spot bids?

In the spot bid market, shippers put their shipments out for a bid, and carriers compete to give the best price. This process is generally used for freight needs with a short turnaround time. As with all elements of the economy, the prices quoted for moving goods from one place to another in a truck fluctuate due to supply and demand.

In this instance, supply is the amount of available truckload capacity. When there is more truck capacity, shippers may get lower prices. However, due to a variety of factors (including a worsening driver shortage and tightening regulations), market-wide freight capacity has been on a downtrend for several years. This means shippers relying on the spot bid market to find capacity can now expect to pay more than they used to.

Pricing challenges

When they stay within a more or less predictable margin, these steadily rising prices can be factored into budgets, and shippers can take steps to keep their rising transportation costs in check. However, when unexpected factors such as weather events arise, spot rates rise sharply, leaving supply chain managers scrambling for solutions to ensure they have the necessary freight capacity without spending more money than they can afford.

This situation has played out in the last few weeks in the wake of various hurricanes. According to DAT Trendlines, between August and September 2017, the amount of spot market loads increased by 12%, while the capacity dropped by 13%. Add in a 7.3% increase in fuel prices, and the result is a sharp rise in the spot costs for trucks, and an even more pronounced rise in the cost of vans and reefers (which commanded a full 11% more in September than in August).

A 3PL can help you avoid paying more than you have to

If you haven’t established a strong line of communication with an experienced third-party logistics (3PL) partner, it’s time to consider it. A 3PL’s job involves deep knowledge of the industry, so you can rely on their expertise. They can work with you to create a plan for the parts of your supply chain that are predictable, and can quickly create solutions for shipping needs that change or arise on short notice.

When it’s necessary to create bids on the spot market, a 3PL has visibility into fair market rates, and they will often know whether or not a carrier has a good reputation and a reliable track record. They can give you insights about whether the prices you’ve been quoted are appropriate for your region, or whether carriers are gouging prices unfairly.

While a 3PL’s insights are invaluable during high-stress events like natural disasters, it’s important to find a logistics partner you can trust well before these times arise. Developing an open line of communication and giving your 3PL visibility into the challenges of your supply chain will allow them to stay prepared for anything that may cause a change in plans, minimizing the disruption to your timeline and budget.

The Future of Logistics