Optimise freight costs and expand your network of service providers
COVID-19 has caused disruption in transport logistics. Shippers are faced with the task of renegotiating transport contracts with their carriers in a rapidly changing transport market. Due to ongoing uncertainties in the market, many companies have so far suspended their tenders or postponed them until the autumn.
It’s a tactically risky decision, as we can see at the end of a turbulent first half of the year. There’s a risk that conditions for new contracts will gradually worsen in the coming months. Meanwhile, conditions for transport tendering have hardly been better than they are today.
Why it’s right to tender now:
1.) Transport market developments are speaking loud and clear
An analysis of tenders conducted on the Ticontract platform from February to June 2020 shows that transports were offered on average up to 13% cheaper than in the same period in the previous year*. This is a consequence of developments in the European road freight transport market, where we’ve seen above all a sharp drop in demand.
The capacity index was therefore at a record high in April 2020 and, similarly, transport prices on the spot market were at a low level. (Source: Transport Market Monitor . With the easing of the past weeks, capacities and prices have indeed converged again but are far from reaching the levels of previous years. For example, prices on the spot market for July 2020 were still more than 10 % below the previous year's level.
(Source: Transport Market Monitor)
* Average identified savings – “cherry picking strategy”
2.) Fuel prices are at extremely low levels
A second outcome of the COVID-19 crisis is low fuel prices. For example, the diesel price index in May 2020 fell by more than 20% compared to the previous year, and in July it was also well below the previous year's level at more than 13% (Source: Transport Market Monitor). In view of continuing low fuel costs, it makes sense to put contracts with so-called fuel clauses out to tender right now. The past few months have shown that an additional potential saving of 10% in freight rates can be achieved here.
3.) The carrier pool is changing
The economic downturn in various industries impacted by the COVID-19 lockdown has created existential needs not only in those sectors but also for many transport service providers. Some transport companies that were already struggling with problems before the crisis may unfortunately not survive. Others have responded to the crisis by reducing staff working hours. Over the next few months, these developments will result in a renewed shortage of transport capacity in the market. This is one more reason for shippers to expand their network of service providers and start looking for the best carriers currently available.
4.) The risk of a bottleneck from autumn 2020
The changing carrier landscape and reluctance to tender in the first half of 2020 will cause a backlog of contracts by the end of the year. There’s also a risk that transport service providers will reduce their capacities yet face increased demand, causing prices to rise again. At the same time, it will become more difficult for carriers to prepare high-quality offers if all postponed tenders must be carried out simultaneously.
5.) It all depends on the right mix
Turbulence in the first half of the year has shown that the right mix of long-term contracts and transport allocation via the spot market is beneficial for all parties involved. Industrial companies as well as transport service providers and carriers can thus easily compensate for capacity fluctuations. In addition, smart data-driven use of the spot market creates many opportunities to reduce unnecessary empty kilometres. This benefits the environment as well as shippers, as the best possible rates can be achieved.
Take action now:
- Strengthen relationships with your transport service providers and expand your service provider network
- Profit from the current low prices and achieve the best possible freight rates
- Define your individual mix between freight contracts and allocation via the spot market
- Find the highest quality offers for your transports