The global transport market was characterized by exceptionally low capacity and rising transport prices in 2017 and well into 2018. Economic recovery phases, as we know them from winter months with lower demand or the summer holidays were also becoming shorter. Even though it looks as if transport capacities have eased again since the end of 2018, shippers still face major challenges. There is still a need for additional carriers and yet some shippers are hesitant to put their transports out to tender due to rising prices. But is this the right strategy? We talked to Martin Beyrer, Director Business Development at Ticontract, and Christian Dolderer, Manager Market Intelligence Initiative Road & Rail at TIM CONSULT.
Mr. Beyrer, at the moment we are increasingly hearing from the market that this is the wrong time to put transports out to tender. Is this your experience too?
Martin Beyrer: Developments on the Ticontract platform show a different picture. So far in 2018, shippers have issued 26% more freight tenders via our platform than in the same period last year. This indicates that our customers are driven to put transports out to tender and that, at present, there is considerable demand for transport capacities. In addition, not only has the number of freight tenders on the Ticontract platform increased but the volume of freight allocated to carriers has also grown by 15%. Added to this, we can clearly see that carriers are proactively looking for new orders so they can further optimize their transport networks.
Mr. Dolderer, how does this compare with your experiences with the Market Intelligence Initiatives (MIIs)¹?
Christian Dolderer: According to our experiences, shippers put out invitations to tender all year round although, due to the contract terms, there are phases with an increased number of invitations to tender. We have observed that shippers who have not issued structured tenders in recent years lost track with the market and have been forced into higher rates. We advise against a flat-rate extension of existing contracts because a well-structured and prepared tender can avoid unnecessary costs in any case.
It is a fact that the global transport market is struggling with capacity fluctuations There were immense capacity bottlenecks in 2017 and 2018. Capacities seem to be increasing again at the moment, but the market is influenced by economic uncertainties and an as yet unknown shortage of drivers. Doesn’t this automatically lead to price increases?
Martin Beyrer: Martin Beyrer: A survey conducted by the Transporeon Group among more than 1,000 carriers from all over Europe confirms that the majority of transport service providers expect the market situation to remain challenging. This is of course reflected in prices. 62% of carriers expect a price increase of 1-5%. Far fewer – just 9% – assume that transport prices will rise by more than 5%.2 This is due to several factors. Of course, the lack of drivers, which cannot be solved overnight, plays an important role. But the positive overall economic situation of the past two years with increased transport volumes in Europe has also impacted capacities and thus prices. In addition, there are other fiscal factors such as rising wage costs, tolls, and diesel costs, all of which will inevitably lead to further price increases.
Christian Dolderer: It's true that prices are rising, but these price increases must be considered separately for individual micro-markets. There will definitely be rising rates on many transport routes. On the other hand, some other routes will be unaffected by price increases or will be significantly less affected. Shippers therefore need clear information and transparency about which transport routes they should tender. Our Market Intelligence Initiatives (MII) provide reliable answers here.
So does this mean that you recommend your customers tender more selectively?
Christian Dolderer: I wouldn't say selectively. We recommend a holistic view adapted to each situation. We do not like to make general recommendations, but advise each shipper individually about their requirements and challenges. The results from the MII benchmarks are, in any case, an optimal basis to decide for or against a particular tender. They are also extremely helpful for price negotiations with carriers, as our community members have intensive and constant market insight. They also know which factors lead to price developments.
Mr. Beyrer, returning to your carrier survey, what measures were and are service providers taking in response to the capacity crisis?
Martin Beyrer: As far as possible given the driver shortage, more than half of surveyed carriers plan to increase their truck capacities. 71% of companies want to achieve this by buying or renting additional vehicles and hiring drivers. 55% also stated that they would increase their own fleet through additional subcontracting. In addition, the majority of carriers believe that digitalization will help them improve their own business situation. This includes the use of digital logistics solutions such as e-sourcing tools and electronic procurement. This should send a signal to shippers. Automated processes accelerate order acceptance and processing, saving time and creating new capacities. In addition, high and unnecessary additional costs can be avoided through e-sourcing. Here’s an example: Prices on the market are increasing by an average of 8%. Through a tender, the shipper can negotiate price adjustment of just 5% with carriers. In this way, the shipper still achieves savings despite adjustment in the market; we call it "cost avoidance" of 3%. Our recommendation is therefore that shippers should jump on the digital bandwagon.
Mr. Dolderer, how are members of your MIIs reacting to the capacity crisis of the last two years?
Christian Dolderer: The reactions are diverse and can be extremely varied, but we are seeing an increase in tenders with elements to secure capacity. In the MIIs, it is precisely these elements that are actively discussed in a framework that ensures compliance. But even on the shipper side, capacities in the purchasing or logistics departments are often insufficient. Here, lean and time-optimizing digital processes on both sides can support personnel in tendering and bidding.
With the Ticontract platform, what are the opportunities for shippers to receive sufficiently comparable offers for each transport tender?
Martin Beyrer: Ticontract enables intelligent and transparent tendering processes on its platform. Shippers have the opportunity to find suitable carriers for their transports and transport routes from over 35,000 service provider profiles. Optionally, the search can be optimized by pre-qualification via a so-called Request for Information (RFI) process. After completion of the quotation phase, an analysis is created with combinatorial scenarios and extensive reports. These are usually used as the basis for direct negotiations between shippers and carriers.
Mr. Dolderer, in your opinion, is there the right or perfect time to tender?
Christian Dolderer: No, there is no such thing as the right or perfect time. Usually, tenders are invited in the fourth quarter. This is a good thing for carriers because it enables them to optimally realize their capacities and they can plan for the year ahead. However, during this time each carrier’s tendering team is so busy that they have to prioritize and cannot bid for everything. So we recommend that carriers continuously monitor the market, assess their own price levels, and bid for tenders in a way that is needs-based and well-structured. In our experience, this brings the best long-term results.
Mr. Dolderer, Mr. Beyrer, thank you for this interview
About Ticontract and TIM CONSULT
Ticontract GmbH is a leading global tendering company and is part of the Transporeon Group. The cloud-based Ticontract platform is a strategic tool for logistics decision-makers, enabling the sale and purchase of transport services. It supports companies to optimize freight rate management processes.
For more than 20 years, the international business logistics consultancy TIM CONSULT has been developing intelligent and innovative logistics solutions in response to customer challenges in global value networks and supply chains. TIM CONSULT joined the Transporeon Group in August 2018. By extending the Group’s offerings to include the TIM CONSULT portfolio, customers benefit from integrated consulting services, new, high-quality market intelligence products, and faster access to innovative big data applications.
¹ With the Market Intelligence Initiatives (MII), TIM CONSULT has been implementing valid freight benchmarking for land, air and sea transport since 1999. The MII Community now has more than 100 members. Unlike other solutions, this expert benchmarking enables a holistic market overview, analyzing all influencing variables and working with resilient data.
2 European Road Transportation Survey 2018
Would you like to learn more about this topic? Interesting insights can be found in Report “Capacity, Pricing & Technology: 2018 European Road Transportation Survey”.