Moving Past Traditional Freight Contracts: The Future is Dynamic

High volume lanes with have volatile rates and capacity can be a shipper’s worst nightmare. Moving the freight is both urgent and difficult.

When relying on traditional methods like RFPs, mini-bids, or the spot market – shippers moving loads on volatile lanes will always be on the lookout for additional capacity. Contracts can break down with market fluctuations and relying on the spot market can expose a shipper to service risks. 

The Challenge

For the airliner's transportation manager, finding consistent capacity to move freight in and out of airports was a constant challenge.

Strict rules and requirements for carriers handling airport freight creates a highly volatile situation. Those capacity constraints are made even more difficult given most of the shipper's freight is reefer, a transportation mode that notoriously tends to have high tender rejection rates and limited capacity. 

Like many transportation teams, there are more loads than there are planners. With limited bandwidth, frequent re-pricing through mini bids and finding capacity on the spot market was not a long-term solution. 

The Solution

To get better coverage and guarantee capacity on their volatile lanes, the Fortune 500 airliner collaborated with Loadsmart to set up a Reliable Contracts program. Starting with 15 of their most critical lanes, the Reliable Contract included: 

1. Ceiling Rate: A maximum cost the shipper would pay on a lane.
   
   
2. Dynamic Rate: The cost to shippers is a floating rate, eliminating the operational need to re-price when rates fluctuate. 
   
   
3. Margin Incentives: A sliding fee structure incentivizes Loadsmart to always find the best rate. Margins only go up, when shipper costs go down. 
   
   
4. Rate Transparency: The shipper received a personalized report with costs and fees for every load. 
   
   
5. Guaranteed Capacity: Throughout the program, Loadsmart accepted 100% of tenders. 

Given the success of the program, the airliner has expanded to new outbound locations and doubled the volume moved through a Reliable Contract. With a floating rate, the airliner has taken advantage of a softening market in 2022 to drive over 20% in cost savings when compared to contract rates at the program start.