It’s freight-bidding season again as carriers, brokers and third-party logistics providers vie for shipper contracts for 2021. But good luck trying to forecast for the coming year with so many unknowns in the economy and the pandemic.
“It’s an understatement to say the unknown has never been greater than it is right now,” Kyle Lintner, principal and managing director at K-Ratio, said during the FreightWaves North American Supply Chain Summit on Tuesday.
Lintner led a lively discussion about the future of contract freight with MoLo Solutions CEO Andrew Silver; Josh Phelan, vice president of finance at J.B. Hunt Transport (NASDAQ:JBHT); and Michael Carlisle, logistics operations director at United States Cold Storage. They also took on the thorny subject of how brokers and 3PLs can live up to their obligations to carriers and shippers in the face of uncertainty and volatility in pricing.
The trouble, Lintner pointed out, is that a large shift in market conditions — 2020 has seen its share — can make it challenging to ensure that contracts hold up when rates move to favor carriers or shippers.
“The notion of contractual business set against nonbinding agreements is the type of paradoxical oxymoron that destroys company balance sheets and creates unnecessary turmoil across the industry,” Lintner said.
Forecasting spot rates 12 months out ‘can be tricky’
Pricing shipper contracts isn’t easy since it requires forecasting the freight market.
“We’re having to estimate 12 months out what the spot market is going to do on the carrier side. It can be tricky at times. But we make our best bets,” Phelan said of J.B. Hunt’s brokerage business.
At MoLo, a Chicago-based freight brokerage, Silver said the company takes a hard line on respecting its contracts.
“If we stopped abiding by the commitment on both sides, we’re done,” Silver said.
And key to that is having the data.
United States Cold Storage works with larger brokers that they know are data-driven.
“We stay away from someone running a brokerage from their kitchen table,” Carlisle said.
An important starting point for brokers, Silver noted, is ensuring the contracted rate is viable.
“We only agree to it if we think we can adhere to it,” Silver said.
Contract freight is a long-term business, too, says J.B. Hunt executive
At MoLo, founded three and a half years ago, getting the data and understanding how to price certain lanes has been a learning process, Silver said.
“The first time we went into a contract bid season with shippers, we were wrong in a lot of lanes,” Silver said.
At J.B. Hunt, the company’s brokerage business looks at more than chasing short-term profits. Phelan, said the company also takes a long view on its brokerage contracts and the relationships.
“We look at the long term, too. We work with our customers, we honor our commitments, not to focus on maximizing our profitability or opportunity in a given time period. But we think about it long term,” Phelan said.