5 Ways Carriers Can Increase Profits in the Current Strong Market
The calendar year may be winding down, but the market for trucking is continuing to ramp up. The good news for carriers is that all economic indicators show the freight market is only going to continue to improve. Within the third quarter alone, strong trucking performance drove up rates, setting the stage for rate hikes for the rest of 2017. Rate increases are expected to continue in 2018.
Shippers should expect single-digit rate increases throughout 2017 and into next year, and increases could be higher depending on lanes, shippers, and customers, according to Stephens research compiled by Brad Delco, a managing director at the firm. Additionally, Stephens’ third-quarter truckload preview reported that carriers are being more selective with their freight, which can allow them to optimize their networks to achieve larger rate increases.
All of this creates a positive environment, and with advanced planning, carriers can ensure they are prepared to benefit from the strong market. It is important to strike while the iron is hot. Below are five action items carriers can implement now to maximize the anticipated increases.
1. Cancel Rates for Inactive Shippers
In the trucking business, rates and contracts are typically open-ended; therefore, as carriers become aggressive with rate hikes from their current shippers, low rates with inactive shippers may remain in effect. Carriers should review the contracts in place for inactive shippers and either cancel them or establish new profitable rates.
2. Review Recent Bids
Although a carrier may have lost out on a recent bid, there could still be an opportunity available to haul that freight, particularly as the market tightens. Perhaps the carrier that won the work is not providing capacity and there is a possibility to rebid. Carriers should regularly review recent bids and follow up with shippers to solicit freight that fits their networks.
3. Consider the Spot Market
According to Stifel’s Transportation and Logistics Industry Update, “the spot market is red hot and is finally providing some much needed levitation on the contract pricing front.” Carriers may want to consider reserving capacity to leverage spot opportunities. One large carrier is reportedly saving as much as 30 percent of its capacity so it can take advantage of spot market rates.
4. Review Commitments Versus Actual Loads
Many times, shippers split loads between carriers in an award, but in actuality end up giving most or all of their business to the carrier with the lowest price. Carriers should review their contracts and awards to compare how many loads they have agreed to haul (or been awarded) on a lane-by-lane basis with a shipper as compared to how many are actually being hauled. For example, if a shipper has contracted to move 10 loads in a lane but is instead giving a carrier 15, the carrier can honor its contract for the 10 trucks, but create a new (higher) rate for the additional five.
5. Engineer Your Freight Network
One of the most effective ways a carrier can maximize profitability is to strategically engineer its freight network to maximize yield. Information, technology, and data analysis are going to become a more valuable commodity for carriers as they decide which shippers to give their trucks to on a regular basis.
Enlightened carriers understand their costs as well as their freight networks and calculate a yield-based rate to identify what price is needed to be profitable on each piece of business. The relationship among the yield-based rate, the market rate, the current rate for that shipper, and the rate for all current shippers on a given lane provides pricing intelligence that leads carriers to smart pricing decisions that optimize the profitability of the freight basket. Hauling freight at or above the market rate does not mean it will be profitable. It just means a carrier is beating the index.
Because the good times in trucking are few and far between, carriers must take advantage of tightening capacity in the existing market. The current and foreseeable freight environment is very favorable for carriers. Carriers need to optimize this opportunity and actively and aggressively manage their pricing and rates.
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