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Dynamic pricing offers cost savings amid market volatility

Shippers should keep market volatility, cyclicity top of mind

A decrease in consumer demand — coupled with the abundant trucking capacity added during last year’s favorable trucking market — has led to nationwide market softening since March. The market has burned itself out, causing tender rejections to drop and spot rates to fall. After two years of chaos, shippers are beginning to regain pricing power. 

Spot rates in some of the nation’s largest markets — Ontario, California; Atlanta and Dallas — have remained more or less unchanged over the past few weeks after plummeting in the Spring months. As rates shrink, they are slowly approaching the pre-pandemic lows seen in 2019. 

While large markets are down and nationwide rates are suppressed, ocean imports are still holding steady. In fact, import TEU data continues to track closely with 2021 averages.

Infamous congestion issues also continue to affect ports across North America.

“The port congestion situation has morphed from primarily impacting the West Coast to … all coastal ranges,” according to The McCown Report. “At ports with a backlog of container ships waiting for berths, there is no demand constraint affecting volumes and throughput will be driven by the ability to get containers out of the terminal.” 

Sometimes, sudden volume spikes are cyclical and predictable. It is possible to plan around these spikes – including produce season, holiday weekends and peak retail seasons – to a certain extent, but their exact timing and veracity will vary by market. 

There are also unpredictable volume spikes to manage due to factors like severe weather, geopolitical activity and the changing realities of supply chain and logistics operations. 

When volumes change, both predictably and unpredictably, so do rates. While rates remain low now, it is important for shippers to remember that the market is inherently volatile and cyclical.

As the overall market loosens, shippers have the opportunity to reevaluate and rebalance their freight portfolios. They will need to consider options that can service their freight, all while keeping their transportation costs low and service levels high, across soft and tight market conditions.

Logistics technology companies have launched a variety of solutions to help shippers expand their options during and beyond annual RFP cycles. Several players created frameworks for shorter bid cycles and more frequent RFPs. Convoy, on the other hand, built solutions that forego contracts altogether.

With Convoy’s Guaranteed Primary solution, a shipper can opt into receiving Guaranteed Primary rates on their preferred lanes and tender shipments on those lanes to Convoy. All types of freight are welcome with no volume caps and tender acceptance is guaranteed.

Shippers can also activate Convoy Dynamic Backup on their TMS to insert real-time rates and unlock instant load booking with guaranteed tender acceptance in their routing guide. It is currently the industry’s most widely available backup solution, thanks to the company’s partnership with 14 leading TMS providers. In today’s soft market conditions, Convoy’s Dynamic Backup rates may be lower than both contract and spot rates.

To keep rates fair and in-tune with market conditions, Convoy uses machine learning and automation to forecast truck costs and offer competitive rates. They also tap their network of more than 50,000 carriers and 400,000 trucks pulling dry and refrigerated loads in order to guarantee tender acceptance.

“We like Convoy’s dynamic pricing model. Although the rates will ebb and flow over time, they are priced based on real time market conditions,” a senior manager of carrier relations and sourcing at The Home Depot said. “Unlike our brokers, Convoy does not have to ‘mark up’ their margins to account for the static rate risk due to market variability.”

Convoy takes advantage of AI and machine learning to open up more possibilities for shippers, allowing them to source reliable and flexible capacity at reasonable prices when and where they need it most. In fact, early adopters of this technology are now shifting out of the testing phase and into the full adoption phase, embracing Convoy as an essential part of their freight portfolio.

“We’re producing 24/7. We can’t shut the machines off. We have to ship product out so we can make more,” a sourcing and transportation manager said. “I want us to operate in a transparent relationship. I see [Guaranteed Primary] laying the groundwork.”

In general, shippers should weigh several factors — including economic outlook and cost basis — when evaluating dynamic pricing models. 

Companies may be able to opt for less holistic (and lower cost) solutions without sacrificing too much profit in times of relative economic stability. In times of uncertainty and volatility, however, shippers will need to choose a dynamic pricing tool that addresses those concerns and takes more of the risk out of their transportation models. 

Often, this means shippers have to choose between saving today and being prepared for tomorrow. Freight procurement programs, such as Convoy Guaranteed Primary and Convoy Dynamic Backup, however, can deliver optimized savings in today’s market and flexible capacity in future freight markets.

These cost-effective tools allow shippers to secure high-quality capacity in tight markets and enable them to navigate volatility with greater flexibility and finesse, making it easier to keep promises to their own customers. 

“Volatility comes standard with market cycles, but the technology we use to navigate volatility is changing,” said Spencer Hennigar, Convoy Group VP of Sales. “Today we have the ability to tap into data, visibility, and insights to optimize service quality and cost to stay resilient and weather every storm ahead.”

Click here to learn more about partnering with Convoy.

This article is published jointly with our partners at Convoy. To view more Future of Freight content, click here.


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