Dynamic Backup: Convoy helps shippers stay off the spot market

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Convoy is killing it right now, leveraging its superior data and technology to attack the transportation industry’s pain points. In March, FreightWaves reported on Convoy’s automatic detention pay that puts $40 an hour into the hands of drivers after two hours of detention with just the click of a button. In May, we reported on Convoy’s revolutionary power-only program, a trailer pool that gives owner-operators access to coveted drop-and-hook freight. 

Now Convoy is turning to the shipper side and launching Dynamic Backup, a new tool that puts a realtime and guaranteed market rate into the routing guide that is instantly bookable. FreightWaves spoke with Himani Jain, Convoy’s senior product manager for Dynamic Backup, by phone. Jain came to Convoy from Amazon, where she worked on Prime Now.

“At Convoy, we have the opportunity to reinvent a massive industry. We’re seeing how technology can make the process for securing capacity more efficient and less costly, while still meeting high service standards,” said Jain. 

Jain explained why the industry’s standard way of procuring contracted capacity can be so painful for shippers. The shipper issues an RFP during bid season and carriers place bids on a certain amount of volume in specific lanes. The shipper ranks the carriers in the order of preference and creates its routing guide, which it uses to find capacity when it has loads to move.

“A shipper will offer the job for a primary carrier on the routing guide,” Jain said, “and the primary carrier has two hours to accept or reject, and the shipper will go down the guide if there’s a rejection, carrier after carrier. Each carrier has 2 hours, and if everyone rejects, the load ends up on the spot market.”

“This problem is magnified in current market conditions,” Jain wrote in a blog post, “as it is one of the most volatile freight periods in history. In June, as much as 27% of contractual freight was being rejected per FreightWaves’ outbound tender reject index.”

FreightWaves has reported on the pain felt by shippers in several verticals due to increased freight costs from being forced to resort to more spot freight than they foresaw. At the beginning of July, Maria Baker reported on General Mill’s decision to cut 625 jobs; freight costs were one reason the company cited for its compressed margins. In June, we wrote about how Smuckers, Kraft Heinz, Tyson, and Hershey had mentioned increased and unpredictable freight costs from the spot market in their earnings calls.

“What’s wrong with this process?” continued Jain. “These rates are static, are chosen during the RFP process. Each rejection adds incremental cost and increases the chances of further rejection, and the cost increases as more carriers in the routing guide reject. Each rejection takes valuable time, as time goes down, price increases and the probability of service failure increases.”

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“We want to solve the problem, reduce overhead, increase coverage, and reduced shipping costs,” said Jain. 

There were three important adjectives in Jain’s description of Dynamic Backup—realtime, guaranteed, and instant—that need some elaboration. The Dynamic Backup tool can offer ‘realtime’ market rates, Jain said, by using machine learning algorithms to mesh the characteristics of the individual load being tendered with Convoy’s massive set of historical data, accounting for lanes and seasonality. By ‘guaranteed’, Convoy means that it guarantees coverage for loads tendered with its Dynamic Backup rates, and ‘instantly bookable’ means that the shipper no longer has to wait two hours for a carrier to accept or reject a load, only to move further down the routing guide.

“We launched Dynamic Backup with some of our largest shippers and they quickly realized three important improvements. First, the shippers increased operational efficiency and spent much less time getting loads covered in spot. Secondly, the increased service: better on-time delivery and better coverage. The third is the savings on freight cost, with fewer loads going into spot. The shippers end up saving a good chunk of their freight cost as well,” Jain said.

One thing we wanted to know is how Convoy manages to guarantee coverage. “We built a realtime understanding of what the current capacity is, and we know for each market where the carriers are and what the availability is… how does that help us? We have tens of thousands of carriers on our platform and are able to access them all,” said Jain. She went on to say that Convoy is currently able to guarantee coverage at the Dynamic Backup rates for a large portion of a large shipper’s loads, but that Convoy is working on getting that number higher.