Transportation costs flew off the guard rails in 2021. Truckload rates climbed as demand spiked amid a resurgent COVID pandemic, capacity shortages and supply chain disruptions from unforeseen events.
Shippers had a difficult time keeping routing guides intact as carriers flocked to the spot market to find paydirt. Dry van truckload prices rose by 21.8% in December versus the same month in 2020. Reefer and flatbed rates posted similar results.
As expected, the spot market cooled off in January. Traditionally, the Q1 period is slower in terms of freight volumes but shippers remain busy adding new carriers and lanes to routing guides after completing major RFP events in Q4 to procure freight contracts.
Monitoring routing guide compliance is a year-round effort but carries greater significance in Q1 when the leakage and carrier churn appear after the annual bid execution. Shippers can use data-driven strategies to quickly analyze problem areas and take decisive actions to get back on track.
Learn more about transportation analytics from DAT iQ
How do routing guides work?
A routing guide is the output of an RFP and is used to manage the daily execution of freight contracts. It is an electronic document that specifies the order for offering loads to carriers in each lane at an agreed upon contract rate.
Routing guides are standard features in most TMS platforms to automate the tendering of carrier-load assignments with a “waterfall” process. This works by a TMS electronically tendering a load offer to the primary carrier on a lane. If the primary carrier rejects, the shipment goes to the next carrier, and so forth, until the load is accepted.
TMS systems also monitor tender rejections, but they lack the data and functionality needed to conduct the root cause analysis that identifies the reasons and costs of non-compliance.
Identifying the root cause
Shippers can use external data from a trusted source to help identify the causes of routing guide leakage down to the carrier and lane level. The data is most useful for analyzing planned versus actual costs to find problem areas, making appropriate changes and measuring the outcomes.
As part of this process, shippers can:
- Find the cost of leakage. TMS platforms measure tender rejections but do not monetize the potential cost impacts of routing guide leakage. They lack data to show what a shipper is paying compared to the market. Using a trusted source of market rate data for analysis will make it possible to quantify the cost of non-compliance.
- Justify reasons for paying above market rates. Not all lanes are equal. Lanes aligned with higher service or insurance coverage requirements may cost more than market averages to secure carriers with the right characteristics. Including the unique attributes of each lane in benchmark analysis will help shippers justify their extra spend and isolate reasons for changes in performance.
- Isolate non-pricing factors. Tender rejections are not always about pricing or cost factors. You may be above market in a lane but have difficulties with compliance. An analysis might reveal, for example, the culprit for leakage is fluctuations in the number of loads tendered to carriers each week in a certain lane. Shifting volumes may be causing carriers to look elsewhere for more predictable freight to balance network flows.
Getting down to the details
When a routing guide follows the plan, transportation costs are in a steady state, with carriers moving loads at contracted rates. When deviations happen, shippers pay higher rates as they go deeper into their routing guides and source carriers in the spot market.
Benchmarking the performance of a routing guide in terms of costs is an effective way to isolate the reasons for deviations. Some common reasons are:
- Detention time. Carriers give preferential treatment to shippers that do not hold up their drivers and equipment while loading and unloading.
- Changing payment terms. Increasing payment terms from 30 to 90 days, for example, carries a cost.
- A sales promotion increases demand. Carriers often raise prices or turn down extra loads because more volume causes network imbalances.
- Change in policy for accessorial fees. A shipper may change its fuel surcharge but end up paying more in linehaul charges or have routing guide leakage.
The power of analytics
Innovative forecasting and market rate indexing tools can help shippers quickly analyze the performance of their routing guides to identify problems, enact solutions, and monitor outcomes.
DAT iQ Benchmark Analytics gives shippers custom dashboards to compare actual costs to market rates by industry sector. The dashboards offer a clear understanding of your price performance relative to the broader shipper market, your industry peers, or specific lanes. This information is not available through internal metrics alone.
Shippers can also use insights from DAT iQ to forecast cost increases for loads and lanes that are most likely to fall out of routing guide compliance. Additionally, Benchmark Analytics helps shippers quantify the relative cost of finding a replacement carrier where needed.
Routing guide compliance is a continuous improvement process that can be significantly enhanced by using transportation data and analytics. Talk to an expert at DAT to learn more about data-driven strategies for analyzing transportation performance.
