How Schneider is dealing with the spot market

Times are tough for shippers. “From 2015 through the first part of 2017, it was a shipper-friendly world,” says Michael Kukiela, vice president and general manager of supply chain management for Schneider, a provider of transportation, warehouse and supply chain management services. “There was plenty of capacity and it was a favorable market from a price perspective.”

That all began to change in the second half of last year, and you might think of it as a perfect storm – beginning with hurricanes in Texas and Florida which coincided with an increase in demand from an improving economy and the new ELD mandate. “All of a sudden routing guides weren't resilient and primary carriers were handling less than 70% of the demand, which meant that about 35% of loads were going out to the spot market,” Kukiela says. “We were struggling to find capacity days after a load was ready to move. The first quarter of this year was the worst in years.”

To place those orders, Schneider's customer service team did a lot of “dialing and emailing for diesel,” sometimes waiting up to eight hours for a response. Often, there was no time to compare offers to see if one carrier was cheaper than another for the same load. “Typically, the first response back was the one you went with because you had to move that load,” notes Patti Harrill, Schneider's director of revenue management. The delays in response led to a 15% drop in productivity, measured by the number or orders the customer service team could execute on a daily basis, and higher transportation costs.

The solution was a new sourcing tool (JAGGAER) with auction and reporting capabilities that allows Schneider to place orders for distressed freight that has to move today or tomorrow within thirty minutes. Here's how it works.

First, loads for specific lanes are put out for bid electronically for 30 minutes at the same time every day. Schneider identifies a select list of carriers for a customer's network whose capabilities line up with the requirements for those customers, and who know that loads will be there for them to bid at an established time. “This goes against the conventional wisdom that if you go out to 30,000 carriers you'll get a better bid,” says Harrill. Instead, the shorter list includes carriers who line up with the requirements for where the market is going.

Carriers who chose to bid must have a truck available to move the load. During the 30 minute bid window, carriers can lower their bid, but they can't raise it from their initial offer. If successful, carriers can expect a tender within an hour after the auction closes.

Harrill's team doesn't do the actual tendering. Rather, using pre-established business rules, the software can do the analysis of all the bids under different scenarios, favoring certain carriers based on their service history, for instance. Once the successful carrier is chosen by the software, that information is forwarded to an internal team at Schneider or to a customer's team to tender the freight. Harrill says the tool has improved the customer service team's productivity and has seen price savings of from 20%-to-170% on any given lane for an average 30% savings in transportation costs.

“This is one of numerous tactics that we're employing to stay ahead of a volatile market,” Kukiela says. “It's also creating the opportunity for us to show our capabilities in a smaller time-based fashion to the market.”

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