The near-unprecedented volatility in truckload pricing over the past 30 months requires shippers, carriers and brokers to rethink how rates should be structured to properly balance price and service, the chief product officer of technology provider Transfix said Wednesday.
Speaking at FreightWaves’ Domestic Supply Chain Summit, Tony Tzeng said the legacy cost-plus carrier pricing model — which shippers said made them feel like they were writing a blank check to their providers — no longer works in the turbulent rate environment of the past two years that is expected to continue.
According to Tzeng, requests for proposals (RFPs) and contracts entered in early 2022 don’t reflect current reality, with spot market rates down nearly 40% year over year and contract rates expected to drop to the high single digits during the next bid cycle. Tzeng said this has resulted in multiple repricing and RFP efforts, a significant time, resource and financial expense.
At the same time, shippers felt they had little choice but to agree to high contract rates because of concerns about service quality being compromised if they left current providers. There is also a lack of pricing transparency, which leads to higher costs and a degradation of service.
Shippers relying exclusively on the traditional spot and contract programs expose their supply chains to more risk in pricing and service, according to Tzeng.
To help bring order to the market and enable shippers to balance price and service, TransFix in September rolled out a program called True Rate+, which Tzeng said balances price and service to provide shippers with the right carriers for their needs.
“[For shippers, the] service is just as important, if not more so, than the price,” Tseng said. “[With TrueRate+, shippers get the’ balance of service-level guarantees with real-time pricing.”
He pointed out the program provides assurance of tender acceptance, meaning shippers can avoid the scenario of tender rejections in tight markets.
Transfix takes on a higher percentage of the costs if it procures capacity above the market rate. It shares with shippers a higher percentage of the savings when procuring below the market rate. The end result, according to Tzeng, are prices that are generally 10% lower than the prevailing industry average.
Tzeng maintained Transfix is transparent to shippers about its costs, the procurement process and the per-shipment savings. Shippers can cancel the program at any time.