DC Velocity - September 2012

transportationreport NATIONAL MOTOR FREIGHT

C.H. Robinson, using TMC’s transportation management system (TMS). The rates applied to shipments moving more than 250 miles and hauled on dry vans, the most common form of truckload livery in the United States.

THE TRUTH ABOUT CONTRACTS

The study’s findings seem to counter the conventional wisdom that shippers need to obtain multiyear contracts to achieve rate stability and capacity assurance in a climate of shrinking rig and trailer counts. Tractor capacity has dropped by as much as 18 percent from 2006, the year the trucking industry entered into what became a multiyear recession.

At the heart of the study’s findings is a fact that most who ship and haul for a living already know: that no truckload contract, regardless of duration, can force a shipper to honor a volume commitment, or a carrier to honor a capacity commitment. Because trucking is considered “derived demand”—meaning supply doesn’t react unless demands are put on it—a carrier can easily change capacity, and the rate it charges, if it doesn’t secure enough high-yield freight on a lane and finds better opportunities elsewhere. In many cases, it will stop accepting freight on a lane altogether.

Faced with little or no capacity when it’s needed, a shipper
has no choice but to scour its rate guide—which lists the car-
riers that provide service on a lane—to seek out alternate
sources of supply. However, these backup carriers will often
charge more for their services than the original supplier had
supposedly promised. This scenario—known in the trade as
“rate guide bleed”—is the main reason a shipper will see its
rates increase beyond what it modeled for during the initial
procurement event, the study concluded.