The end of 'set it and forget it' pricing? Opportunities for market-based freight contracts

Abstract

In the for-hire truckload market, firms often experience unexpected transportation cost increases due to contracted transportation service provider (carrier) load rejections. The dominant procurement strategy results in long-term, fixed-price contracts that become obsolete as transportation providers' networks change and freight markets fluctuate between times of over and under supply. We build behavioral models of the contracted carrier's load acceptance decision under two distinct freight market conditions based on empirical load transaction data. With the results, we quantify carriers' likelihood of sticking to the contract as their best known alternative priced load options increase and become more attractive; in other words, carriers' contract price stickiness. Finally, we explore carriers' contract price stickiness for different lane, freight, and carrier segments and offer insights for shippers to identify where they can expect to see substantial improvement in contracted carrier load acceptance as they consider alternative, market-based pricing strategies.