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of alienating big customers. Though carriers have more
sustained pricing leverage than in any year since 2005, shippers with abundant market clout still have options and can
shift to a lower-cost carrier that offers similar coverage if
they are dissatisfied with an incumbent’s pricing. Shippers
were not expected to absorb full rate increases except on
critically important lanes where there were no viable carrier
alternatives, according to Ben Cubitt, senior vice president
of supply chain strategy, consulting, and engineering for
Transplace, a third-party logistics firm that represents its
shipper base in rate negotiations.
more than a year ago and spiked dramatically through the
winter and early spring as bad weather curtailed capacity
and forced shippers and their brokers to scramble for any
rig and trailer they could find.
32 DC VELOCITY DECEMBER 2014 www.dcvelocity.com
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Rates have barely abated as this story was being written.
Van rates in September were up 15 percent from the prior
year, while reefer and flatbed rates each increased 16 per-
cent year over year, according to DAT Solutions, a consul-
tancy. Spot rates exceeded contract rates on 45 percent of
spot hauls in April and May, a much higher ratio than the
traditional 25 percent figure, DAT said. The 2014 numbers,
For bigger shippers, a response to the carriers’
actions is no farther away than their computers’
however, were likely skewed by the fallout from the
miserable winter weather. With spot rates likely
to remain elevated, especially as another
winter approaches, shippers have begun
Nicolaus & Co., referring to a program
that lists carriers serving specific lanes
that shippers can pick from.
moving some of their spot freight to con-
tract service, even if it means paying
more for hauling that freight under
contract than they’ve paid in the past.
Cubitt said in mid-October—the
height of the 2015 contract rebid season—that despite shipper worries about shrinking capacity
and higher rates, “we are still seeing bids without major
inflation.” Instead, carriers are taking an approach that will
result in what Cubitt called “stealth rate increases.” A typical carrier strategy, for example, is to reduce the frequency
of its acceptance of a shipper’s initial rate tender. Whereas
in years past, a 90-percent carrier acceptance rate might
have been commonplace, that level could drop, across
a broad average, to 85 percent in 2015, Cubitt reckons.
In addition, small shippers that lack
the buying power of their bigger breth-
ren are likely to get squeezed because
they have little recourse, according to Larkin of Stifel.
C
“[They] may have no choice but to accept … rate increases
as full pass-throughs,” he said.
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“Essentially, carriers are saying ‘no’ to a shipper’s load at
K
$1.30 a mile when they could get $1.75 a mile,” he said.
Shippers who’ve traditionally clubbed their carriers over
the head will speak with a softer stick in 2015. In the years
following the 2006 freight recession and the economic
recession that ensued, a shipper’s initial bid might call for
a 5-percent rate reduction in return for agreeing to stay
with its incumbent carriers, with both sides eventually
compromising on 2 to 3 percent savings. That same bid
today would also reward incumbency but would not call for
rate savings, according to Cubitt. In addition, shippers last
year convinced their core carriers to keep rates steady—or
propose only moderate increases—if shippers pledged not
to take their lanes to bid. That approach didn’t work that
well this time around, Cubitt said.
According to Fuller of U.S. Xpress, one of the biggest
changes in this contract cycle was the increasing willingness of shippers to change their behavior to accommodate
his company’s drivers. As an example, a customer that in
the past had expected pickups between 2 a.m. and 4 a.m.
changed its schedule to make it easier on U.S. Xpress’s
drivers. Other shippers have been willing to alter their
transit time requirements to give U.S. Xpress’s drivers more
rest and take pressure off them while they’re on the road,
he added. These types of shipper modifications have been
almost unheard of until recently, Fuller said.
However the strategies are sliced, the common thread is
that shippers are resigned to paying more next year than
they have in recent years. “Grudging acceptance” was how
Perhaps the most profound and long-lasting change,
though, is the increasing amount of attention paid by car-
riers to core customers, perhaps at the expense of a large
swath of other shippers. The same holds true for shippers,
which have been paring down their carrier bases and giving
those who make the cut the lion’s share of their business.
Fuller said that while U.S. Xpress continues to serve its
broad customer base, “our concentration with our top 50
or so shippers has gone up dramatically” in the past year.
Cubitt described the typical shipper’s mindset.
SEE ‘SPOT’ HURT
Most of the price pain is being felt in the non-contract,
or spot, market, where about 20 percent of all North
American truckload freight moves. Spot rates began rising
Fuller said those favored shippers have relationships with
his carrier and don’t treat the freight tender as a transac-
tional exercise with the objective of securing the lowest
possible price. The shippers that engage in the latter type of
behavior, he said, “will be the ones left out in the cold” in
a climate where if the pendulum hasn’t swung in the carri-
ers’ direction, the scales are as balanced as they’ve been in
almost a decade.
