Are your rate cards modelled to keep up with fluctuation of freight markets cycle? Despite the knowledge that these cycles cause constant shifts, most rate management is built for a more static system.
This blog explores how you can maintain a balanced rate card strategy and use Qargo to help automate your pricing.
What is the freight market cycle?
The freight market, and your business’ individual levels of demand, moves through cycles. These cycles can be broken down into four core stages.
- Trough – freight volumes are too low for the amount of carriers looking to ship it. This oversupply can cause rates to fall – with spot rates dipping below contract rates. Heavy competition for freight can lead to carriers scrambling to cover costs.
- Recovery – when demand begins to pick up again, the excess capacity gets absorbed. Rates stabilise and may even increase.
- Peak – demand or freight levels now outstrip capacity. Shippers may struggle to find carriers with truck space, and carriers have more choice over the freight they choose to move.
- Correction – carriers can be tempted to add trucks, which can take months to arrive. And by the time they do, demand may have slowed – meaning supply has overshot, rates soften, and the cycle begins again.
Spot vs contract rates
Spot rates are an in-the-moment price for a single load and are aligned with supply and demand shifts.
On the other hand, contracts are negotiated and fixed for a set period of time (typically annually). Shippers lock in rates to get stability and carriers accept lower peak upside for guaranteed volume in the troughs.
The pricing gap between your spot and contract rates is a strong indicator of where you are in the freight market cycle. If the pricing gap is large you’re likely at the trough or peak stage, and when they grow more aligned, you’ll be at the recovery and correction stage.
Where rate cards break down
Contract rate cards often seem like a smart play and a fair deal for both you and the shipper. But static rate cards can also have you feeling trapped in a market that can flip completely in a matter of weeks. In soft markets, you could be leaking margin but missing capacity in tight ones.
You’re walking a constant tightrope of manual renegotiation.
Often, in this instance, we see that carriers get bullish about surcharges – adding in extra costs for fuel, peak season, and accessorials just to claw back a bit of margin. Keeping track of all these extra charges and remembering to bill for them can quickly become unwieldy if you don’t have a system that can help automate this process.
What “cycle-aware” rate management looks like
Rating with an awareness of market cycles may seem like an obvious solution, but it’s often easier said than done in practice.
Instead of shoehorning everyone onto the same flat rate card, and then adding sprawling surcharges to cover fluctuating costs, building out multiple simultaneous rate structures (contract, spot, index-linked) gives you the flexibility to offer the most suitable option on a per-customer level.
That being said, fuel surcharges are an important lever for protecting margin and recovering costs. But the key is to automate indexing so base rates stay clean. Plus, be sure to have real-time visibility into performance so you can be quick to adjust rates and apply surcharges as soon as they’re needed, not being reliant on quarterly reports that land on your desk too late for action to be taken.
How Qargo fits in
Qargo’s TMS is built to operate at the level of granularity that cycle-aware rate management actually requires – rate cards and cost rules that can be broken down by lane, customer, and charge type rather than treated as one flat number. Tools like the Fuel Surcharge Dashboard give real-time visibility into that specific data, so surcharge recovery doesn’t have to wait for a quarterly report.
Ready to make your rate cards as flexible as the market? Talk to Qargo and see our platform in action.
