Transportation Procurement Evolves, But Objectives Remain the Same

January 16, 2024
By Chris Caplice, Ph.D.

Being in the truck transportation industry for several decades offers the benefit of perspective. You’re not shocked when yesterday’s hot-button issue seems less important today. Or that best practices from an earlier time may prove detrimental.

We see this in our annual surveys of shippers. DAT Freight & Analytics (and previously Chainalytics) has been measuring, monitoring, and benchmarking shipper behavior, practices, and service levels — in addition to freight rates — for more than 20 years. It’s instructive to look back at two decades of shipper sentiment to see what’s changed and what’s stayed the same.

First, the core principles of procurement and transportation management remain constant. In every survey since 2004, the top KPI for managing carriers has been on-time delivery. On-time pickup and carrier acceptance ratio annually jockey between second and third.

There may be subtle changes over time. For instance, a more recent enhancement to the carrier acceptance ratio is tracking primary carrier acceptance per capacity commitments, a metric made capable by the increasing sophistication of transportation management systems.

Shippers Still Submitting Requests

The dominance of RFP use also hasn’t changed. For years, shippers have used the annual RFP as the solution to securing capacity. In our 2023 survey, 81 percent of shippers reported running annual bids. So, the RFP is not dead. Shippers are just finding new ways to use it.

During the chaos of the coronavirus pandemic, many shippers resorted to “mini-bids” at quarterly, monthly and sometimes even weekly frequencies. This gets to the heart of one of the most substantive changes in transportation procurement in recent years.

Shippers have (finally) recognized — and even embraced — procuring with market volatility and demand variability in mind. Many are moving to shorter bid cycles and experimenting with more dynamic rate structures.

Of course, not every procurement trend sticks right away. For instance, index-based pricing has been around for more than a decade. These contracts operate like adjustable-rate mortgages, with terms updated based on index performance over a previous time period, with some caps on rate changes.

In our 2023 survey, 43 percent of shippers said they have used or considered index-based contracts. However, among this group, less than 20 percent implemented them. Shippers are aware of index-based pricing but not widely adopting it.

Tapping New and Familiar Technology

Advancements in technology might help. Instead of modifying rates for a lane at a quarterly or monthly cadence, pricing can be adjusted load by load, based on the current market (or index) level at the time of tender.

To do this, the shipper and carrier (or broker) must use an application programming interface (API) connection. In our 2023 survey, 44 percent of shippers reported having API connections with at least one transportation provider. Most shippers (58 percent) reported having API connections with what have been called digital freight brokers.

While APIs are becoming common, electronic data interchange (EDI) connectivity still dominates. In fact, EDI ranks among the top five most essential carrier requirements in our surveys. I doubt this will change soon.

EDI connections, once established, are incredibly efficient across a full spectrum of lanes. In contrast, API connections are better suited for lanes and loads that are infrequent and sparse. They’re a niche solution for hard-to-fill lanes, as two thirds (65 percent) of shippers that use API connections only use them for 5 percent or less of their freight volume.

So, don’t rip out your EDI connections just yet. The two technologies will co-exist for several more years.

Payment Flexibility Increasing

While payment terms in general haven’t changed yet, they are shifting. For two decades, the most common payment term has been 30 days. However, our latest survey shows an increase in longer and shorter payment terms.

The percentage of shippers with payment terms greater than or equal to 60 days increased from 11 percent in our 2011 survey to 27 percent in 2023, while the share of shippers with payment terms fewer than or equal to 15 days went from less than 1 percent to 5 percent over the same timeframe. One shipper reported seven-day payment terms, another 120 days. The 30-day term still rules, but the variance is growing wider.

Developing perspective is an ongoing process. It takes time to experience things from different angles, and there’s always more to learn. Three roller-coaster years have given new ideas and technology momentum, but more than 20 years of shipper sentiment proves that the procurement car will always stay on the rails of on-time, damage-free, low-cost service.

(Image credit: Getty Images/Urfinguss)

About the Author

Chris Caplice, Ph.D.

About the Author

Chris Caplice, Ph.D. is chief scientist at DAT Freight & Analytics, a Denver-based freight exchange service and transportation information provider, and senior research scientist at the Massachusetts Institute of Technology (MIT) Center for Transportation and Logistics in Cambridge, Massachusetts. He is founder and co-director of the MIT FreightLab research initiative.