Being exposed to the volatility of rates in the trucking market is one of the most prevalent issues that shippers face. Unstable freight rates can lead to significant service issues and unfavorable variances to budget. To better identify these risk areas in shippers’ networks, Spot developed its volatility analysis, a proprietary tool that takes lane characteristics and order patterns to estimate overall volatility. Evaluating the volatile lanes within your network can ultimately lead to improved pricing, capacity stability, and increased service levels. So, how exactly does the volatility analysis work and what value can it bring to your operations?
HOW DOES THE ANALYSIS WORK?
In order to prepare a volatility analysis, Spot requires data at the order level (lanes, daily/weekly/monthly volume, seasonal order patterns, etc.). Having this data helps to further identify the pain points present within your network through attributing a volatility score to each lane. An average score is in the 60-70 range with higher scores indicating greater volatility.
To develop the actual scores, Spot analyzes the impact each of the below has on both price and capacity:
- Volume Per Week: average loads observed in a dataset per week
- Weekend %: percentage of lane volume picking up on Saturday or Sunday
- Weekday Density: percentage of weekdays with lane volume greater than 0
- Network Synergies: number of lanes that fall within the same market regions
- Fall-Off Exposure: potential cost & service impact of primary tender rejection
Depending on the supply chain nuances and shipper/receiver specific requirements, the above process can be adjusted to any shippers’ unique situation.
WHAT DOES THE ANALYSIS TELL US?
After reviewing the potential volatility of the individual lanes, the analysis can be taken one step further by applying a bundled lanes approach. This typically results in a significant reduction in volatility by bundling lower volume individual lanes into higher volume bundles within specific markets. In most cases, by bundling alike lanes, pricing and capacity stability will be improved. Spot then utilizes this information to guide the motor carrier decision making and negotiation process, always ensuring that you have capacity at the best available price.
In the below example, you will see that an 18.84% improvement in the volatility score is present when the seven individual lanes are bundled into one market-to-market pair. In this case, Spot would utilize one carrier to control rate volatility vs. utilizing multiple different carriers on the individual lanes.
When analyzing volatility, it’s not just pricing and capacity that can be improved, but also carrier service and execution.
FINAL THOUGHTS
Spot’s volatility analysis is just another unique way that we aim to be more than just a broker by becoming an extension of your supply chain and by creating mutually beneficial cost savings initiatives. If you’re interested in receiving more information on the volatility analysis process, contact us here or reach out to your Spot representative.