Dealing with disruptions

Editor’s Note: The SCM thesis Managing Disruptions: Understanding Shipper Routing Guide Performance was authored by Grace Caza and Varun Shekhar and supervised by Dr. Chris Caplice ([email protected]) and Dr. Elenna Dugundji ([email protected]). For more information on the research, please contact the thesis supervisors.

On the tail end of a global pandemic, we have become accustomed to the importance of flexibility. Supply chain and resilience are front-page buzzwords, and just-in-time is being replaced with just-in-case. Now is the perfect time for truckload shippers to re-evaluate their procurement strategies and measure their routing guide performance.

Shippers tender loads on the spot market to compete for daily rates. They also utilize routing guides to tender loads to carriers at contracted rates. We wanted to understand whether their routing guides can insulate them from the volatility experienced in the spot market during disruptive events.

Together with C.H. Robinson and their TMC division, we reviewed routing guide carrier tendering data from 2015–2021. We explored the resilience of routing guides of 90+ shippers used for full truckload, long-haul (>250 miles), dry-van shipments. To quantify the impact of planned and unplanned disruptive events on shipper routing guide performance, we considered the routing guide depth (the number of tenders made before tender acceptance), linehaul cost per mile, primary carrier (highest-ranked carriers in the routing guide) acceptance rate, and the percentage of routing guide failures for loads on both high-volume and low-volume lanes. We assessed routing guides for statistically significant changes in performance during disruptions (and in the one-week periods before and after the events) compared to a six-month benchmark period in the same year.

Do all disruptions behave the same?

We categorized routing guide performance during disruptions by the number of years in which they were disrupted versus their magnitude of impact. Independence Day caused the most year-over-year changes in performance on both high- and low-volume lanes, but Memorial Day did not cause statistically significant changes in primary carrier acceptance in any year on any lane type. We also noted differences in performance for events that occurred on weekends versus weekdays.

Most interestingly, we found that routing guide performance changed with market conditions and that routing guide depth varied with lane consistency, frequency, and load volume. Low-volume lanes were more susceptible to routing guide performance degradation in soft markets (when carriers’ supply exceeds shippers’ demand) compared to high-volume lanes. Low-volume lanes were more likely to see routing guide failures across all disruptive events, regardless of the market type. We recommend that shippers consider dynamic procurement strategies for low-volume, infrequent lanes, because they were impacted in most annual holidays.

Comparatively, routing guide performance for high-volume lanes was more resilient. High-volume lanes were impacted during holidays that occurred in tight market years or in extreme, unplanned events like Hurricane Harvey. Overall, high-volume lanes are less impacted by scheduled events like holidays or DOT Roadcheck, an annual vehicle and driver compliance inspection event, compared with low-volume lanes.

Finally, in tight markets (when shippers’ demand exceeds carriers’ supply), we noticed that the effectiveness of routing guides garnering carrier load acceptance diminished. Shippers tendered loads beyond the fourth back-up carrier in the routing guide; however, the loads were not accepted and were moved to the spot market at higher costs after more time had passed. The “right” number of back-up carriers to include in a routing guide should be determined based on performance during tight market conditions.

Measuring success

Time is money, and routing guide depth can be used as a KPI to assess the extra energy spent by shippers to tender loads during disruptions and in tight markets. Shippers should also consider segmenting lanes by volume and cadence (frequency of weekly volume) when studying routing guide performance. Benchmarking performance each year can also help to isolate the effects of disruptions from those of changing market conditions.

The “new normal” means we must all expect the unexpected, like weather events and holiday demand spikes. Shippers that understand their routing guide performance and leverage more dynamic procurement strategies like limiting the number of back-up carriers and re-routing shipments in advance of disruptive events will be better positioned to reduce tender rejections in all market types.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.

These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

SC
MR