CSCMP session examines factors driving truckload rates

Getting past headline themes of how truckload rates work and function, for non-transportation and logistics executives in shippers’ companies is key in order for them to better understand how rates are viewed and explained.

That was a key point made by Kelson Hardwick, Director of Transportation Procurement, for global retail shipper Walmart, at a session at this week’s CSCMP Edge conference in Nashville.

The session, entitled, “What Drives Truckload Rates and What Can a Shipper Do?”, addressed what the session’s description referred to as “the art, practice, and science behind rates.”

“It is key [for shippers’] finance groups to understand how rates work, as well as the continuous education needed,” said Hardwick. “All of us who have been in supply chain for a long time are still learning every day about the supply chain. And those that are not part of it do not understand it at all. You need to take the time to educate them and make sure that they understand different aspects of pricing, like spot versus contract and why both are important.”

As for resources, people can reference in order to take a deep dive into what rates are comprised of, Steve Raetz, Director, Market Research & Intelligence, for C.H. Robinson, cited the annual publication from the American Transportation Research Institute (ATRI), “An Analysis of the Operational Costs of Trucking,” which examines the costs-per-mile for motor carriers—and has one recurring finding.

“Each year, the costs of [trucking] operations goes up,” said Raetz. “Part of that is a market element related to supply and demand. Other things impacting it are different things that happen in the marketplace, like when spot rates increase.”

Another example of market factors that can impact rates, he added, was aging tractors that are weeded out of carriers’ fleets but are not replaced, which effectively amounts to a contraction in areas with volume demand.

“When that happens, pricing power comes back to the carriers and you see a price inflection,” he said. “That is why prices edge up, because over the two or three years from the last bottom, prices have gone up.”

When asked if Walmart has gone over operating ratio information with its carriers to identify some of the cost drivers that may be out of whack, as well as what is happening at customers’ docks, or, to a certain extent, at suppliers’ docks, as operating costs’ data contains the key metrics carriers are using to assess business profitability, Hardwick said that in a dedicated-type of environment, Walmart very much tries to gauge what the costs should be through what a clean sheet-type model should look like.

“Those are the conversations we have…to say ‘here is what we think it should cost,’” he said. “In a dedicated and fixed environment, those conversations happen, less so in a regular route over-the-road business, where cost inputs are much different for carrier A, carrier B, and carrier C. It is not use telling carriers where we think things should be. It is more you tell us…because usually those conversations come up where a carrier says it can no longer serve this business at the costs that are in place and the question is why. Those are the conversations we have to have. It is difficult to have them, as it is hard to talk about every lane and every load in our network, but they are active cost conversations that happen.”