On May 15, 2018, we wrote about the first fully automated intelligent routing guide with dynamic rates in the US. That powerful tool enables shippers to automatically book a truck before the shipment turns into a spot load and has reduced spot volume for Fortune500 Shippers by as much as 50 percent. Loadsmart accepts 100 percent of tenders received from the dynamic routing guide, guaranteeing capacity. This feature helps shippers avoid the same-day/next-day markets, which are known for steep prices and service failures. Given the huge interest and questions we got from the logistics community, we decided to expand and explain the reasoning behind it and how it actually works in a granular way.
At Loadsmart, our mission is to do more with less. That’s why we innovated with a major customer to help them drive down their spot market exposure by 50 percent. We worked with our customer to help them do more with less by pushing market-based truckload rates into their TMS for every load that goes through their routing guide. Simply put, we do three things:
- Provide real-time pricing on every load in the routing guide via API;
- Auto-accept every tender we receive;
- Guarantee capacity for all of those auto-accepted tenders.
This explains how we went from participating in a daily spot auction via email to a full-fledged integration with our customer to reduce spot volume.
The Build Up
The question was: “how do we provide pricing (and by extension, optionality) on each of these loads without inflating our internal cost structure?” Clearly, a lean cost structure is the first ingredient to doing more with less.
This file sent by the shipper averages between 150 and 300 spot auction loads. If we assume that it takes 30 seconds for the average employee at a typical brokerage to type a new OD pair into a website to get a price, evaluate market condition indicators and enter a rate for a single load on that spreadsheet, then it takes the average broker between 75 and 150 minutes to price each load. This customer requires rated files to be submitted back in 60 minutes, which means the average broker needs two to three FTEs to rate every single load that hits the spot auction. Loadsmart’s algorithm prices the loads in the file automatically in minutes, thereby generating cost savings we can pass onto our customers.
Soon enough, our customer noticed how quickly we were returning rates on every load. However, their next comment surprised us: “That’s cool, but we hate spot freight”.
Building the Solution to Spot Freight
It made sense. Our research has indicated that the average company spends 20 to 50 percent above their contracted rates for spot capacity. That’s the natural outcome given the short lead time of spot / ad hoc freight, not to mention that most providers “smell blood in the water”.
Our new challenge was to help our customer do more with less by applying the same principles to their “pre-spot freight,” or routing guide freight. We worked closely with the shipper to devise a method for us to help them avoid spending more money on spot capacity that was likely to result in a service failure.
- We poll our customer’s TMS to get a list of all of their shipments;
- We return rates on each shipment via API (this process repeats as old rates expire so that our customer always has optionality);
- Our customer evaluates our rates against their sometimes year-old contracted rates;
- We are tendered the load as soon as our rate is the next most competitive one in the waterfall;
- We auto-accept the tender (this happened quickly after we realized that having one of our highly skilled account managers click “accept” for 100 percent of loads was an utter waste of time and money);
- We guarantee capacity, meaning we service the load and never give freight back
There are two critical elements here that make us successful at helping our customer avoid the spot market: 100 percent acceptance and guaranteeing capacity. Interestingly enough, neither of these two things are tech solutions. Rather, they are the result of our company’s dedication to our mission.
Erik Malin is the VP of Operations at Loadsmart.