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The following article appeared in Transport Topics.

Using the Spot Quote Market to Balance Lanes

By Dan Clark
President
CarrierStore
10/29/07

Balancing lanes is the key to carrier success.

A completely balanced lane is achieved when a tractor-trailer leaves a terminal full and arrives back at the terminal full. The major challenge every carrier faces is how to get freight on their trucks that will fill open capacity, thus balancing their lanes. Securing volume freight — 3,500 pounds up to a truckload — is an excellent way to meet this challenge.

Carriers, however, are finding that this coveted volume freight is moving into the spot-quote market. What does this mean? In a nutshell, shippers are no longer automatically shipping their volume freight through contracted carriers at agreed upon tariff-based rates. Instead, they are shopping around their freight to multiple carriers to get spot quotes.

A true spot quote is when a shipper contracts with a carrier for a one-time price to move a particular piece of volume freight. If the shipper’s freight matches the carrier’s open capacity, the shipper will see huge savings.

The savings are substantial enough that increasing numbers of shippers are getting spot quotes on every piece of volume freight they move.

As a result, carriers no longer can assume shippers will move volume freight on their trucks with contracted tariff-based rates. They need to embrace the spot-quote market and provide these quotes to shippers in a timely and cost-effective way.

Let’s step back now and look at the freight movement process to see how obtaining volume freight through spot quotes helps balance lanes.

Regional less-than-truckload carriers expect 70% to 80% of their bills to be picked up one day and delivered the next. Through inbound planning and dock operations, current-day freight, coupled with scheduled appointments, is loaded on planned pickup-and-delivery trailers for delivery that day. Based on that day’s freight characteristics, drivers are able to interleave pickups with deliveries, increasing driver efficiency. The goal is for drivers to pick up sufficient freight during the day to fill the trailer prior to returning to the terminal that evening.

Through outbound planning and dock operations, LTL pickups arriving at the local terminal via the P&D cycle are transferred to linehaul trailers scheduled to move freight to the terminal closest to the shipment’s destination.

Linehaul usually represents 30% to 40% of an LTL carrier’s overall costs. LTLs have linehaul schedules that generally require tractor-trailers to leave that evening to deliver goods to the destination terminal the next morning.

Although the goal is for linehaul trailers to leave a terminal completely full, this goal is often compromised because even if the lane lacks sufficient freight, the trailer is obligated to leave that evening to meet delivery commitments.

To avoid sending partials and meet next-day commitments, carriers will move freight through hubs. In addition, if a lane is two or more days and there is insufficient freight to justify a terminal-to-terminal linehaul schedule, carriers will use break terminals to aggregate freight to maximize the trailer cube before arriving at the final terminal.

These LTL approaches are very similar to the spoke-and-hub concept used by most airline carriers to ensure fully loaded planes on longer flights. For the same reasons airline travelers dread having to go through hub terminals — missed connections, longer travel times and lost baggage — sending LTL freight though hub or break terminals results in additional handling and the danger of lost or damaged freight.

Shippers and LTLs alike benefit when LTL freight does not need to be aggregated via hub or break terminals.

Balancing inbound and outbound lane schedules with P&D and linehaul power (equipment) and resources are critical to ensuring LTLs are profitable.

As labor can account for as much as 60% of overall costs for an LTL, schedules for dock, driver and equipment must be managed for maximum productivity. Likewise, if P&D or linehaul trailers return empty to terminals, the LTL will find profitability a challenge.

LTLs understand their overall schedules and the costs for various P&D and linehaul schedules. These schedules vary based on the time of month, season of the year and the number of customer contracts. Spot quotes are an excellent vehicle to balance a given LTL’s lanes. A single spot quote shipment can make an unprofitable lane schedule profitable.

Each LTL’s schedule is different, based on customer contracts, and a profitable head-haul lane for one carrier may be an unprofitable backhaul lane for another. Spot quotes create a supply-and-demand situation that helps carriers balance inbound and outbound schedules to optimize P&D and linehaul processes, the goal being to eliminate the need to send freight through hub terminals.

Carriers often give spot quotes over the phone or e-mail, but are finding the need to automate this process to free up account manager time in the terminals and better serve customers. Some carriers have turned to the Internet and are providing spot quotes on their Web sites. And there are several Web-based services offering shipper choice by providing spot quotes from multiple carriers.

The CarrierStore xChange connects shippers directly to the pricing departments of carriers for volume and truckload freight spot quotes. CarrierStore is based in Acton, Mass.

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