What is the key to handling peak demand periods for enterprises?
The fourth quarter every year is typically the peak season for transport demand. In anticipation of this transport demand spike, the majority of supply chain managers are already preparing solutions in order to prevent a dramatic increase in their operational costs.
As transport demand goes up and supply remains largely unchanged in the fourth quarter, freight rate prices skyrocket. In fact, Capgemini’s supply chain manager points out the fourth quarter last year has recorded the highest freight rates since they started tracking them 11 years ago. In other reports, Goldman Sachs expects transport spot rates to peak during the last quarter of this year again.
Interestingly, the annual demand spike doesn’t only affect specific industries that are characterised by seasonality. Due to a general increase in demand, driven by consumer industries and the impact of e-commerce growth, this effect can be observed in almost any sector. Failure to prepare for demand spikes often results in shippers having to turn to expensive spot markets to cover urgent transportation needs. In fact, according to our data, the markup for spot prices within regional transport can reach up to 15-20% during times of supply shortage. For supply chain managers, this can severely impact their yearly logistics budget, direct key resources away from the operations team and put logistics at risk.
How Enterprises Can Ensure Best Prices During Demand Peaks
Traditional RFPs On Their Own Are Not Enough
Larger shippers, especially enterprises, usually try to prepare for demand peaks by creating a shield of tender-negotiated rates with shippers to protect themselves from market fluctuations. This helps them to maintain some predictability within the highly volatile deal-based freight rate market where prices are determined by offers. Additionally, they often rely on traditional logistics companies and transport providers to guarantee the same service level throughout the whole year.
However, with the general growth of e-commerce, the increasing demand for transport and the shortage of qualified drivers, many traditional logistics providers and transport providers are now failing to maintain load coverage and capacity during peak periods. As a result, 3PLs have to prioritise their contracts according to tender value. This often means dedicating their limited capacity to those that ensure them the highest ROI and rejecting low-value tenders, if the previously agreed contracts allow for this. In fact, this trend is exactly what we observe in markets. For instance, in the busy summer season this year, Outbound Tender Reject Rates (OTRR) jumped to over 25% in the US before eventually starting to fall below 20% in the following weeks. For the upcoming peak season with Black Friday, Cyber Monday, Christmas and Boxing Day, this rate will probably be much higher.
The Outbound Tender Reject Index typically shows sharp increases for the end of the year, but this Summer has been reaching record levels too. Source: SONAR
Ultimately, individual RFPs (requests for proposals) alone can’t adequately prepare large shippers for peak demand: new methods will be needed to fully prepare for high-demand periods.
Routing Guides Are Better, But Don’t Fix The Problem
A possible solution for shippers to deal with demand peaks is to diversify their provider base, to build a solid database of backup providers or to create a larger base of 3PLs with equal shares. In short, the idea is to develop a list of multiple logistics providers with pre-agreed freight rates. This means that whenever a provider fails to handle a load, others can step in and help, even during general demand spikes. Of course, when demand peaks reach their climax and several providers start to drop out, supply chain managers are forced to go through their contact base and scramble to find a provider with capacity. This creates a situation of serious stress for logistics managers and it puts the company at risk of failing to deliver on time or within budget.
Ontruck - Digital Marketplace With 100% Load Coverage
One of the new, and better, ways for supply chain managers to prepare for peak demands is to turn to digital marketplaces for transport services, such as Ontruck, that guarantee high load coverage at the best possible price at any season. Ontruck works with larger shippers such as PG, Alcampo and Decathlon in a tender capacity. Given that these larger enterprises value reliability, service and competitive pricing, Ontruck offers several advantages to these clients.
Firstly, Ontruck guarantees a 100% load coverage rate and high service level for regular routes, in order to take care of day-to-day operations. Secondly, Ontruck gives customers preferential access to its database of best drivers for any spot demand so as to ensure high load coverage and best prices. Thirdly, the digital transportation marketplace provides customers with immediate spot pricing that reflects fair market prices. This removes the need for supply chain managers to send endless emails, make multiple phone calls and go through the daily stress of securing a spot shipment. Instead, logistics managers can immediately place any spot shipment request through the application and Ontruck will confirm within a short time whether it can be fulfilled, all of this ahead of other spot requests that Ontruck matches daily.
To sum up, as a provider for regular routes, Ontruck provides supply chain managers with an excellent partner with high load coverage rates. Not only this, but it also gives them access to a digital marketplace that can be leveraged as a flexible resource to cover spot demand or demand peaks in the most efficient way possible.
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