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Optimizing transport assignment using the spot-market principle Daily updated transport allocation reduces empty runs and cuts costs WHITE PAPER SPOTMARKET

Content

INTRODUCTION ...... 3

UTILIZING THE SPOT MARKET...... 4

CUT TRANSPORTATION COSTS BY UP TO 10% ...... 5

ABILITY TO REACT TO MARKET FLUCTUATIONS ...... 7

INTEGRATION ACHIEVES PROCESS ENHANCEMENTS ...... 8

CLOUD PROVIDES OPEN, REAL-TIME TRANSPARENCY ...... 9

THREE STEPS TO OPTIMIZED TRANSPORT ASSIGNMENT ...... 10

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Introduction

European and global shippers face a range of challenges, particularly the cost of carrier inefficiencies. It has been estimated that 20% of all trucks in the European Union are running empty1 and, shockingly, German trucks travel without loads some 37% of the time2. Industry data reveals that empty trucks in the EU traveled approximately 350 billion kilometers in 20103.

Enabling trips that allow for possible return loads or continuous-move traffic flows greatly benefits shipping companies looking to increase productivity and lower transportation costs.

With far-reaching consequences for the environment and downstream economy, efficient use of existing capacity reduces traffic volumes and lowers 2CO emissions. And of course, this also cuts costs for shippers and carriers alike.

1European Comission (2014): Rules for Improving Trucking in the Interest of the Economy, Drivers and the Environment, press release from April 14, 2014 2The German Federal Motor Vehicle and Transport Authority (2015): An overview of 2014 monthly figures: January to December. Accessible at: http://www.kba.de/DE/Statistik/Kraftverkehr/deutscherLastkraftfahrzeuge/deutscherlastkraftfahrzeuge_node.html 3European Commission (2012): European Transport in Figures, Statistical Pocket Book 2012, Luxemburg, p. 19

= 350 bn. empty kilometers In the EU, 20% of all 20 % trucks on the road are without load

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Utilizing the spot market

Currently there is high capacity in the EU spot market for freight. This makes spot-market allocation more attractive to EU shippers – it’s a viable solution to optimally allocate empty truck space and minimize deadheads.

However, to manually assign freight on the spot market requires enormous effort. After contacting multiple carriers via email and phone, and receiving all offers, the shipper has to type this information into lists and spreadsheets for comparison. Rates can fluctuate even while determinations are being made on whether to accept or reject each bid.

While many companies still work this manual way, forward-thinking logistics managers have started to adopt web-based transport assignment systems instead. These systems automate the bidding process, saving time, money and manual effort for shipping companies. They also allow automatic order assignment to the lowest bidder at the end of the bidding process. And as some shipping companies are reluctant to relinquish decision making, these systems can revert to an experienced dispatcher to confirm carrier selection when price isn’t the only consideration.

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Cut transportation costs by up to 10%

Web-based logistics platforms and internet freight exchanges offer methods Example of Transporeon transport assignment process of handling freight assignment that are significantly more efficient than manual efforts. Web-based platforms carry out a ‘mini-bid’ process with Carrier a selection of carriers. Dispatchers enter relevant data to an order screen 1 and then release the information. Carriers can review requests and submit Offer load for bid an offer based on the specifications. In contrast to manual transport Load assignment, this process can be completed within 10 to 15 minutes. Based on 3 2 the situation and the market, a Transporeon solution allows the dispatcher to Bid 4 Bid selection choose from an average of four offers . submission Shipper Utilizing the spot-market principle reduces the possibility of empty runs 3 Carrier & and, as a result, increases efficiency for the carrier. In turn, agreed rates are price will be often less than fixed-contract pricing. In this way, shippers can reduce their imported into the ERP/TMS transport costs by up to 10%. Both sides benefit from on-the-spot transport 3 assignment. Load is assigned

3 Data is imported into the carrier’s system

4Transporeon (2016): Transport market compass; internal survey of the bids by ‘best carrier’ order. Based on the number of bids in web-based platforms with a closed 5 carrier pool. WHITE PAPER SPOTMARKET

Advantages of web-based transport assignment

ADVANTAGES FOR SHIPPERS ADVANTAGES FOR CARRIERS

Reduction of empty runs up to 13%

Reduction of fuel consumption and vehicle emissions

Transport costs savings up to 10% Improved vehicle utilization due to return loads and traffic triangulation

Minimal effort and expense to obtain optimum freight prices Workload reduction for dispatching

Improved, guaranteed delivery Effective route planning

Rapid response to freight market fluctuations Short-term ordering of additional transports

Reduction of empty kilometers with the implementation of ‘best carrier‘

-13 %

560.000 487.200

Empty kilometers before Empty kilometers after

Example saving of a Transporeon customer

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Ability to react to market fluctuations

With daily updated transport assignment, shippers can react quickly to Prices developed in the opposite direction but shippers that continue to place transport market fluctuations. And these can be significant – particularly in orders only on a fixed-contract basis remain unable to take advantage of recent years, the phases between capacity shortages and oversupply have lower prices. By using the spot-market principle, on the other hand, shippers changed faster than ever before. The years 2017 and 2018 were marked by an can react with flexibility to changing capacity and price developments. extreme bottleneck in transport capacities throughout Europe. As the global economy became increasingly gloomy, capacity noticeably increased from the start of 2019.

Price index between May 2018 and June 2019

60 120

50 110

40 100

30 90

20 80

12.1 10 70 Price index 5.1 4.5 3.2 3.9 0 1.3 0.6 60 Difference of the price index values of the price index Difference -1.9 -10 -3.8 50 -6.4 -5.0 -8.3 -8.3 -12.7

May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19

Difference of the price index values Price index Source: Transport Market Radar 7 WHITE PAPER SPOTMARKET

Integration achieves process enhancements

A new transport assignment system should be compatible and integrate easily with any existing IT system through an ERP interface or plug-in. It should also be possible to leverage a common interface to each carrier’s IT platform, fully optimizing and increasing operating efficiencies through the simple import of shared data.

Automating processes such as the import of order entry data prevents errors and frees up personnel and resources for more value-added activities.

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Cloud provides open, real-time transparency

When choosing a transport assignment system, cloud solutions typically offer access to a larger pool of potential carriers. All parties have easy access to the system via the internet, eliminating the need to set up and maintain complex interfaces. All involved – the shipper, the carrier and the customer – have real-time access to transport status.

By contrast, shipper-specific systems do not promote efficiency or cross- supply chain collaboration since the data sits in an in-house system behind company walls. Additionally, cloud systems usually undergo continuous development and improvements without the need for complex system updates.

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Three steps to optimized transport assignment

1. CLOSED/SELECTIVE OPEN FREIGHT TENDER EXCHANGE Use benchmark data Various benchmarking reports offer current monthly market data on price Manageable number of transport Higher number of transport and capacity development. For example, the Transporeon Transport Market service providers service providers Monitor provides general market data as well as sector-specific data (on Minor control of the process is Higher control of the process is wood, paper, building materials, and other industries). These indices can be necessary necessary used as benchmarks for data from the transport assignment system. Quality of shipping process is Quality of shipping process is easily tracked difficult to track

2. Deployment of reliable carriers Carriers are often unknown Choose between closed tenders and open freight exchange Single loads can either be sourced on the spot market via a web-based Relevant potential for savings in High potential for savings in transport costs transport costs logistics platform concentrated on a defined carrier pool or they can be sourced from an online freight exchange accessible to all transportation Price transparency for the Price transparency for the entire logistics providers. The majority of shippers rely on a closed system, ensuring shippers within the carrier pools, market the carrier pool comprises only proven partners of the highest quality. higher confidence level

Proof of delivery is visible to all Communication about delivery parties involved status is not ensured 5www.transportmarketmonitor.com 10 WHITE PAPER SPOTMARKET

3. Consider your customers’ needs

What are your customers’ expectations and needs for delivery quality? Certain customers may have demanding criteria regarding reliability – for example, they may ask for just-in-time deliveries – and special requirements may be necessary. It may be important to your customer that you provide additional equipment and capacity, or adhere to specific shipping rules and regulations, including providing advanced notice for receipt of goods. In such cases, a closed-pool process is recommended.

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