By Omar Singh, president and founder, Surge Transportation
Routing guides are always going to fail. The basic reason is that forecast is linear but demand fluctuates so they are not always in perfect alignment — especially when taking lead time into account. The end result is tender rejection, a failed routing guide and a need to source capacity in the spot market.
Let’s take a moment to contemplate a routing guide that never fails. Let’s talk about one that incorporates a version of the spot market into being a digital part of it rather than an alternative source.
During the last two years, we’ve seen record tender rejection rates — peaking close to 50% at times and sustaining close to 20%. The expectation is that this is not going to change anytime soon. We are facing increased demand and decreased supply. There are more people who consume more goods and fewer drivers and trucks to transport those goods — simple math. As a result, shippers are sending more freight to alternative carriers than their primaries and landing in the spot market. Shippers that are embracing technology are sending more freight to their digital API real-time pricing spot market.
But there is a notable distinction that is taking place. “More” in this case does not mean only because tender rejection rates are higher and naturally that means a greater quantity. Importantly, there is a fundamental strategic shift in the way shippers are sourcing capacity. Shippers are aligning with reliable digital real-time price providers that are going to give them a fair market price and send their freight directly to their real-time bucket while scrapping the routing guide altogether. What is interesting to watch is that the real-time bucket is getting bigger and the routing guide is getting smaller — it is eroding.
There are many ways the routing guide is eroding from all sides. Some shippers are designating certain types of their freight to tender only to a real-time environment — take a little off the left. Some are getting rid of published backup rates and relying only on real time — trim a little off the right. Some are not publishing as many carriers per lane — not going as deep on the guide — cut a little off the bottom. The value of getting a fair market rate, from an established reliable provider, and sourcing capacity faster than before is becoming more preferred than the traditional slower way of tending freight to four or five carriers that each have two hours to decide — all the while you just lost the truck in those 10 hours.
What is additionally accelerating this adoption is that TMSes are developing this API capability on behalf of their shipper customers and giving it to them. Many shippers do not even have to make a substantial technology investment — they just have to say yes and give it a shot. When they do that, they begin to see the value, and the routing guide gets smaller. Also, real-time rates are now being returned when the load is planned — before the waterfall, not just after the waterfall.
“Eroding” works in this case because routing guides are diminishing in size. It is not likely that routing guides are going to become extinct, but they will be smaller, more shallow and very much digital. The responsible thing to do will always be to hold an RFP event and award primaries. However, there will be fewer lanes on the RFP, fewer providers per lane — perhaps two instead of five — and a heavy reliance on a digital fair market rate and rapid sourcing of capacity beyond that.
More from Surge Transportation:
Don’t compete with noncompetes
