August 21, 2024 • General
There are many upcoming factors that may affect how clients wish to award freight to carriers and brokers.
Currently, we are seeing inflation decrease, retail season begin, holiday closures increase, and autumn produce roll in. All these factors can affect a client’s transportation costs as we near the end of the year.
Rather than let these factors impact their costs, shifting strategy to contract or spot awarding can be beneficial. These shifts can be a minimal or a large overhaul, but it’s the lack of flexibility that can keep clients from saving money during these cost-affecting periods.
Brokerages like Full Sail Logistics are here to help clients strategize the most effective transportation models for their freight. Cost-savings, efficiency, and ease of use are all important values we bring to the table. However, the choice of spot awarding or contract awarding of freight is the last strategy needed to keep a client’s supply chain as efficient as possible.
Why Spot Award Freight?
Carrier Capacity Issues
This can mean a lack of consistent available carriers or service issues with current carriers. Whether a fall-off or a difficult lane puts the client in this position, it can be best to resort to spot awarding if lead-time and lane flexibility are sufficient.
Contracted Rates Are Unaligned with the Current Market
Despite even the best planning, contracted rates can fall out of line when major market shifts happen. Labor strikes, port closures, tariffs, and much more can cause quick changes in transportation costs. If the effects are determined to be short-term, spot freight may be the best option.
Gather Rates
If a new lane is introduced or a current lane is modified, incumbent carriers may or may not be able to service properly. Putting lanes out to the spot market can determine if there is better service or rates available to a client. Sometimes, it is best to test the waters.
Why Contract Award Freight?
Utilize Quality Service
Of course, many clients intend to keep transportation costs as low as possible. This is an understandable strategy for a company’s supply chain, but quality and efficient service is something that cannot be taken for granted. That may not happen with the cheapest option. But, the cost-savings elsewhere in a supply chain due to quality transportation can more than make up for a costlier carrier. Contract the carrier that benefits a supply chain at all points.
Reducing Exposure to Vulnerabilities in the Market
Transportation costs can be best reduced by consistency and familiarity. By allowing a carrier or broker into a smaller network of partners, the less a client will have to rely on the spot market and the fluctuation in rates that comes with it.
Building Stronger Partner Relationships
Partnerships between carriers/brokers and clients are extremely important. Constantly relying on the spot market doesn’t create the trust or clear communication that working with someone on a contracted basis builds. With these stronger working relationships comes easier decision making and less worry because they know the people handling their freight directly.
What About Something In-Between?
If neither of these freight awarding options work best for a client, there are awarding strategies that straddle them.
Peak seasons, major holidays, and other factors that create short-term shifts in the market can wreak havoc on contracted capacity or cause a spike in carrier rates. To get ahead of this, clients can implement “seasonal” bids, weekly rates, monthly bids, or quarterly contracts. This is best to not let price gouging during desperate times get the best of a client’s pocketbook.
At FSL, we specifically advise our clients on how best to manage their lanes during potentially vulnerable times in the market. We work with our clients in all manners of awards, from spot to contracted to specialty bids. We value our clients at all levels of freight awarding, and we do our best by them at every opportunity.
