Spend some time on a logistics floor or around logistics folks and you might hear them say things like, “market is tight, need to find someone quick” or “that area’s loose but getting tighter.” What they are discussing are the market dynamics as it relates to supply and demand in transportation, and this usually becomes a focus when working on spot market freight. Things never sit still long in transportation, so it is important to understand the dynamics at play and the lingo so everyone can stay on the same page and execute their business needs in those challenging environments.
Transportation is one of those great industries that really relies on supply (carriers) and demand (shippers) in the spot market. Shippers request pricing to move a load where they do not have an agreement with a carrier ahead of time to move it at a specific price. Usually this is freight that ships in a short to intermediate window. The back and forth between shipper and carrier as they discuss rates, locations and freight characteristics can often resemble a trading pit on Wall Street.
At the most basic level, spot market pricing comes down to an understanding of where the load picks up, where it delivers, capacity in both markets, and hours of service utilization. How your freight competes in those areas will go a long way towards determining how attractive it is to a carrier and the pricing you receive.
At the basic level, markets are generally considered loose or tight based on the dynamic between the amount of available trucks and the number of posted loads in a region or market. If you have more loads than trucks, the market is tight. When you have more trucks than loads, the market is loose.
In a tight market, carriers have pricing power and their choice of loads. Shippers compete for a finite commodity (available trucks), so they must make their load as attractive to carriers as possible. By its very nature, that drives up the price to become competitive with other freight in the area. A savvy carrier weighs this dynamic on both the origin and the destination of the load to determine what pricing they want to provide the shipper as a spot movement. Ideally, a carrier will want to move from tight market to tight market to maximize revenue, all other considerations like network, driver home time and equipment needs notwithstanding.
Loose markets are where carriers need to compete for loads, as there are more carriers than loads. In this market, associated costs tend to be less for the shipper, as carriers work to secure the load for themselves and will usually lead with price first. If a load is picking up in a loose area but lands in a tight market, that carrier will usually place a higher premium on that load because they are leaving an area that offers them no choice and entering one that does. This is when competition for your load heats up, and you will often be inundated by carriers reaching out for information, or to compete for that load (if it is posted to a load board or something similar).
As a shipper, how do you handle this? Regardless of market conditions, shippers need to manage and navigate negotiation with spot carriers on their freight. How these negotiations go depends upon the markets you are dealing with. Are you shipping from a tight market? Into a loose one, or vice versa? How do shippers manage multiple carriers asking them about spot freight? Or, in a tight situation, how does a shipper find carriers to help them with their needs? A shipper’s transportation department usually has other tasks to accomplish at the same time, so efficiency is key.
Partnering with a digital freight marketplace like Loadshop™ is an excellent way to manage all of this. A shipper can utilize digital marketplace to get freight in front of carriers, receive direct feedback from carriers about market dynamics and move the load. Further, the ability that Loadshop™ provides both carriers and shippers to easily and instantly book the load at the shipper-set price means no more faxes or email chains from multiple sources, and the phone doesn’t ring off the hook as both participants work together to move the freight.
If you are a shipping manager or in carrier leadership, there are very real soft costs associated with the old way of manually muscling your way through this dynamic. There is also the old-school method of trying brokers, but that incurs costs from brokers who need to make their mark-up on the load. Utilizing a robust digital freight marketplace like Loadshop™ drives efficiency for both carriers and receivers, and it provides a seamless and transparent process for both parties to also navigate tight and loose markets, all within the software. Carriers receive access to multiple shippers in multiple markets, all in one place. And shippers receive access to expanded capacity and carriers outside of their own network. It really benefits everyone involved and, at the end of the day, shouldn’t that be the goal for everyone?