By: Sujen G George -- Research Analyst, Logistics and Warehousing
09 December, 2016
The common practice for spot sourcing of trucks has been either to engage with a 3PL or middle-men / brokers, who can arrange the trucks when required. Although this sourcing method has been in practice for long, most of the companies still struggle in terms of obtaining the best lead time between placing an order for a truck and getting the goods delivered on time. Other priorities include a hassle free booking process and obtaining the best spot rate of the day.
With the advancement of technology, the on-demand platforms have been able to pair up trucks with the sourcing companies. They are also helping procurement organizations source trucks for their cargo through an app, thus avoiding the long process of contacting middle men and bargaining for best rates. This advancement has also been proving helpful for the transport managers, as they can now track their cargo on real time right from pick up to drop-off point.
The current market scenario
In the spot market, the main implications of a procurement manager are to identify low cost transporters with the required capabilities to deliver the goods safely at the destination and within the budget. For this, the procuring companies tie up with either a 3PL or middle men (who act as brokers), who on the sudden demand for trucks check the market from the available transporter and get the best truck in the vicinity. In this kind of sourcing practice, the general relationship between the buyer and supplier is short term, lasting only till the sudden surge of demand exists.
Majority of the procurement organizations especially in FMCG and e-commerce companies opt for spot sourcing generally during the holiday season, when there is a strong consumer demand putting pressure on rates as supply of trucks tightens. The recent growth of online sales and retail inventories has also been creating opportunities for LTL (less-than-truckload) carriers with truckload of parcels or small palletized loads shipped to the nearby postal centers or drop off points.
Though this method has been in practice for long, most of the transportation managers still struggle to get their goods delivered on time by the carriers and safety is a major issue in the LTL as most of them operate on consolidation or load board. Although load board is a web-based platform, the shippers still face challenges such as posting ads (the shippers have to post an ad every time they require a carrier) and negotiating with carriers (once the carriers are shortlisted by the shippers, they have to negotiate to get the best rate possible).
Expert Quotes: “Strong demand in November and December could tighten capacity, putting forward pressure on spot rates, as well as getting closer to the holidays, there may be big rush between Thanksgiving and Christmas to get things repositioned, with truckloads of parcel shipped to local postal centers for drop-off”- JOC
How the market is going to change
The advancement of technology, especially recent startups such as on-demand platform for carrier loads has been helping the procurement industry in sourcing the carriers based on requirement. This technology infrastructure has been bringing the online and offline worlds together, with the demand that is created online by the sourcing companies being serviced offline by the carriers either instantaneously or in a scheduled manner.
During a sudden rise in demand from the consumer, the sourcing companies can now book a carrier for their cargo through the app and even track their cargo right from dispatch to receiving it at the point of delivery. This kind of access to technology is bound to change the sourcing industry in the following parameters.
A cardboard box manufacturer in Seattle, WA normally uses 20 to 25 trailers worth of sheets of cardboard, and by the end of the day converts them into boxes to ship out. If on any occasion they have to encounter unseen demand or they run out of glue used to hold the boxes together, then the case explains the two scenarios faced by the procurement team with and without on-demand platform.
Few years ago, the bargaining power of shippers was low as their supply of spot market trucks was either through a middle man or a 3PL. However, with the development of an on-demand platform, the shippers now have access to a broader market of suppliers who are willing to provide the service at the best possible price. This change has been made possible with the growth of startups such as Deliv and Kanga. These players are providing the shippers with a wide range of services and making sure that the supply of trucks is always available for them at any point of time. The adoption of on-demand platforms improvises the sourcing experience. The platform relieves the buyers from long booking processes and provides them a convenient click-of-a-button solution at an affordable price tag.