Last week, we were joined by industry experts in our latest webinar to discuss volatility in the freight marketplace, along with our proposed solution: virtual dedicated capacity. Our discussion went over the pros and cons of dynamic pricing, the rise in the use of dedicated fleets, and profiled SemiCab’s unique offering to solve marketplace volatility; the combination of our predictive optimization algorithm and how it creates virtual dedicated capacity, benefitting both shippers and carriers alike.
Here are the 4 top takeaways from our discussion with El Marie Hugo (supply chain expert), Chris Russell (Blue Yonder), David Thomas (HP), and SemiCab co-founder Jagan Reddy.
1: The Freight Marketplace is Volatile
This point is a pretty obvious one, and yet it’s also one that bears repeating. Volatility has been a hallmark of the freight marketplace for decades, and it hasn’t gotten any better. We can all agree that 2020 has put even more stress on the industry as a whole, and there seems to be no end in sight.
Compared with last year, 2020 has seen trucking volumes first increasing by 30% as a result of panic buying, then dropping drastically, and now ticking back up again. Railroad volumes declined by 20 percent and have not recovered, and last-mile deliveries have surged more than ten times over. And though dynamic pricing is one way to address the issue, it’s not having the desired effect.
2: Dynamic Pricing Doesn’t Help
Dynamic pricing refers to pricing that changes automatically as market conditions drive change in supply and demand. Over the last few years, it has been touted as a solution to volatility in freight markets, under the assumption that it protects shippers from cost overruns, but it doesn’t help in the long run.
Freight is more complex than just a simple demand and supply equation, and the dynamics of any freight lane within any given day is what causes the rates to swing dramatically from hour-to-hour, day-to-day, week-to-week, etc. Which means, more often than not, shippers, digital brokers, and carriers end up perpetuating the volatility; as market demand goes up, carriers move their equipment to lanes where they are likely to get higher prices, which creates capacity scarcity in other lanes causing prices to rise. And it is because of this that dedicated fleets are becoming more and more popular, but at what cost?
3: Dedicated Fleets = Underutilization
Dedicated fleets offer shippers guaranteed capacity and more control over service levels, but at an extremely high cost, underutilization. Additionally, dedicated fleets only serve the short to mid-haul, which means long-haul freight remains stuck in the volatility cycle. As more and more shippers turn to dedicated fleets, we’re seeing more and more empty backhaul miles, which makes this option more expensive. And so the issue with obtaining reliable capacity leads to higher transportation cost due to empty backhaul miles.
Plus, shippers are not only looking for capacity, but for reliability, as well as flexibility, so that they can scale as needed if something goes wrong. And so, though dedicated fleets can help with guaranteed capacity and excellent customer service, the other end of the formula means that there are more trucks on the road driving empty, which takes sustainability right out of the equation.
4: The Model is Broken
For all those reasons, we can say with certainty that the current freight marketplace model is broken. Here is a quick rundown of how the model is ineffective:
- Shippers want reliable partners in order to meet their service level agreement (SLA).
- To do so, they go through bidding, and sign long-term contracts, in an attempt to guarantee reliability.
- Then, at some point, market volatility leads to higher spot market prices, which means:
- >> Carriers move their trucks to the spot market—rejecting shipper loads even when they have long-term contract-based partnership.
- >> Shippers are forced to send their loads to the spot market and to work with unknown partners, which means they cannot rely on the service levels they thought they would get with their long-term carrier partners.
- >> Shippers end up paying higher prices, which means they exceed their budget.
- When the reverse occurs, and there’s a spot market crash, carriers simply start accepting more of the shippers’ loads against contracts—to the point that shippers don't get the benefit of low spot pricing (because they are not set up to chase prices, they originally signed long-term contracts to get stable prices and service), but they have no choice but to pay those higher prices.
And that’s not all, there are two other issues that hinder any chance of progress.
- Business Demands: A shipper’s main objective is to keep moving their freight effectively and reliably to support their operations in manufacturing, distribution, and retail. This overriding business imperative makes it impractical for them to chase prices (on the spot market) at the cost of reliably supporting their business operations.
- Transactional relationships: The traditional transactional freight matching approach fails to guarantee shippers will have access to dependable carriers who can deliver expected service levels.
Shippers must focus on securing stable and predictable rates. And the way to do that is by joining a Collaborative Transportation Network that offers virtual dedicated capacity with the flexibility of one-way carriage.
What if shippers could get dependable capacity, lower costs, and sustainable relationships? Imagine having the benefits of a dedicated fleet with the flexibility of one-way carriage, without the fixed cost and under-utilization associated with dedicated fleets.
What if carriers could get fully loaded miles and guaranteed minimums, without any risk and with access to the growing ecosystem demand?
Which brings us to the concept of Virtual Dedicated Capacity introduced to the market by the Collaborative Transportation Network, SemiCab.
Collaborative Transportation Networks
Collaborative Transportation Networks help shippers and carriers keep their trucks full by identifying and connecting them with shippers seeking regular capacity in their specific freight lanes, without the need for dynamic pricing. SemiCab is a Collaborative Transportation Network—an ecosystem—designed to create an equitable community by fostering transparency within the freight space through virtual dedicated capacity.
What is Virtual Dedicated Capacity?
Virtual Dedicated Capacity is when a digital freight platform provides all the benefits of dedicated capacity—quality, service levels, stable pricing—with the flexibility of a one-way lane-based model, like SemiCab. Our predictive optimization algorithm aggregates one-way loads across shippers in the ecosystem to create dedicated capacity from high-quality carriers for that aggregated demand.
On our platform:
- We bring shippers together to help them identify efficiencies across their networks.
- Large shippers provide the core capacity. Smaller ones help balance the network to generate larger efficiencies.
- API-based technology provides insight into demand and supply provided by the community.
- Machine learning creates predictive algorithms that help shippers find best matches on recurring lanes and compares service and pricing options.
- Shippers don’t need to know each other or even be aware of the “collaboration”. The platform leverages the network without any bias to collaborative relationships among the participants.
- We allow parties to connect and convert traditional one-way moves into more collaborative round trips, thus eliminating the need for dynamic pricing altogether.
Learn more, watch our Webinar!
If you missed our webinar where we discussed market capacity trends, dynamic pricing, and our solution to freight marketplace volatility, not to worry! You can access the recording here. As always, we’re eager to hear from you and answer any questions you may have. Reach out to us if you’d like to start a dialogue, and of course, join our mailing list to keep up with the latest SemiCab news.