In my last blog post, I talked about continuous improvement within your TMS. One way to attain this was by eliminating repetitive spot quote lanes. Today, I am going to dive a little deeper into the pros and cons of the spot market.
Recent analysis of spot quote data revealed shippers paying as much as a $6.88 RPM premium OVER their primary carrier’s rate on shipments of at least 250 miles. Consider for a moment that, even on the shortest haul in our sample, this translates into over a $1,700 premium. Once your shipments are open for spot bidding, you’ve lost the upper hand in carrier negotiations. Carriers know that shipment needs to move, and data analysis shows shippers will pay handsomely to ensure deliver. Left unchecked, spending like this will quickly blow a transportation budget out of the water.
Here are 4 ways to ensure you maximize the benefits of spot quoting, without letting freight spend suffer:
- Understand Why Shipments Are Hitting the Spot Market – A best-in-class TMS will require your staff to use “reason codes” to record what circumstances drove the decision to send shipments to spot bid. Managers need to properly coach their staff on the use of reason codes. Analyze this data to determine why shipments are going to the spot market and take the necessary corrective action to reduce or eliminate it.
- Adjust Your Routing Guide – Take the data analysis you’ve gained to this point and use it to improve your routing guide. Remove carriers that are not meeting their commitments and add additional capacity in the lanes that require it. Consider getting contract rates from a broker and inserting them into the routing guide as a stop-gap before the spot market. You will spend more than with an asset-based carrier, but will save money compared to letting those shipments go to the spot market.
- Don’t Award to the First Carrier to Submit a Bid – Even though the load is hot and needs to move today, resist the urge to pull the trigger until you have received several bids or the bidding has been open for at least an hour. There is always a broker willing to move the load for $4+ a mile. Wait until asset-based carriers have submitted bids to try to get a more competitive rate.
- Hold Planners Accountable – Your TMS should be able to report on spot market spend by planner. Incentivize your team to minimize spot market spend by tying a personal KPI to it. Also, look to see if any particular team members have a higher average spot spend than others and then dig into the data to determine the root cause.
- Leverage Your Performance Reviews – Review spot bidding participation and costs with your carriers as part of periodic service reviews. Incorporate these metrics into your scorecards to strengthen the efficacy of your spot quote utilization.
- Be Selective in Seeking Spot Quotes — Target spot bids to groups of carriers that are most likely to provide service in the lane(s) you need to fill. Offering all spot bids to all carriers, every time, dilutes the sense of urgency the carriers feel when receiving spot bids as they are forced to sift through multiple irrelevant offers each time you broadcast a need.
Using the Ultra spot bid tool either as part of a full UltraShipTMS implementation or as an add on to your incumbent TMS tool can drive significant cost savings in your utilization of spot bids. If you’d like to see a demo of the spot bid tool, visit us here and we’ll be happy to show you how well it works!
You will never eliminate the spot market from your transportation network. There will always be capacity crunches to deal with as a result of month/quarter end, produce season, natural disasters, etc. The key is to ensure spot bidding is used as a tool to your advantage, and not to let it become a Band-Aid for a dysfunctional routing guide.