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August 6 2018

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36 The Journal of Commerce | August 6 2018 www.joc.com Surface Transportation SHIPPERS FACING DOUBLE-DIGIT rate increases in an unprecedented tight trucking market increasingly are willing to consider shorter-term contracts and volume guarantees to secure needed capacity and, they hope, some measure of control over runaway transportation costs. With the fall peak shipping season approaching, capacity tight on the rails as well as roads, and the US freight economy looking strong well into 2019, there's pressure to deal. Truckload spot rates eased in mid-July, but they remain at near- record highs. "Shippers are willing to pay more to assure the fact that when they call, a truck is going to be there," said Charles W. "Chuck" Clowdis, managing director of research and consulting firm Trans- Logistics Group. "They're willing to assure volumes in order to ensure capacity." "Shippers are starting to do innovative stu„, trying to figure out what level of volume guaran- tee makes sense," said Ben Cubitt, senior vice president of supply chain and transportation at logistics pro- vider Transplace. "That's in the early stages of development." Traditionally, shippers have been as reluctant to guarantee shipments as carriers have been to guarantee trucks. Guarantees usually come with penalties when they're broken, and no one wants to be caught short and penalized when orders fall below forecasts or drivers aren't available. "Carriers say, 'I'm not going to tie up my capacity for a year or two years. We just don't know what's going to happen,' " Clowdis said. The same is true for shippers, whose pre- dictions for sales and demand over multiple freight lanes can change significantly within a year. The trucking market is so hot that some of that resistance is melting. Capacity, whether dedicated or guaranteed, is critical to shippers preparing for what looks to be a chal- lenging fall peak season. Increasingly inflexible customer delivery demands only add to the need. "We met with a consumer products goods shipper who said they had 25 customers that impose fines" for missed deliveries, Cubitt said. Walmart isn't alone with its on- time, in-full delivery requirements. "In that kind of world, you really do want guaranteed capacity." O„ering some level of guaran- teed volume in return for a capacity guarantee is an option for those who don't want to pursue costlier dedicated trucking. Most dedicated contracts run multiple years and come with a premium price, which is why dedicated is growing rapidly. With truckload carriers saying they're overbooked each day, some shippers will be hard-pressed to get any agreement, said John Haber, founder and CEO of consulting firm Spend Management Experts. "Trucking companies have all the leverage right now," he said. "The only people who are getting contracts these days are people who are willing to pay a premium to lock Exchanging guarantees In a tight trucking market, shippers increasingly are promising freight volumes to secure capacity By William B. Cassidy "Shippers are starting to do innovative stuƒ, trying to figure out what level of volume guarantee makes sense." $1.25 $1.35 $1.45 $1.55 $1.65 $1.75 $1.85 $1.95 $2.05 $2.15 $2.25 Jan- 17 Feb-17 Mar-17 Apr-17 May- 17 Jun- 17 Jul-17 Aug- 17 Sep- 17 Oct-17 Nov- 17 Dec- 17 Jan- 18 Feb-18 Mar-18 Apr-18 May- 18 Jun- 18 Jul-18 Trucking spot rates back down from 2018 high Source: DAT © 2018 IHS Markit Weekly spot truckload rates per mile excluding fuel surcharges Trucking | Rail | Intermodal | Air & Expedited | Distribution

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