How LogisticsExchange is Disrupting the Truckload Contracting Practice

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Truckload contracting is a fragmented market in dire need of better management tools. But is that why as much as 25% of all road miles are still being driven empty? A new company called LogisticsExchange (LE) has taken an entirely fresh look at that question. Interestingly, here’s where it has landed: It is attacking the industry’s traditional contracting practices.

The company has developed a new kind of freight contract. Called LE Forwards,  these contracts are binding agreements that commit capacity while preserving the flexibility to trade within the broader market. Simply put, the LogisticsExchange platform helps carriers and shippers make commitments they can actually plan around.

Getting started with LE is easy, because the company provides what it calls “automated opportunity analytics,” allowing its platform members to quickly identify the best fits in their portfolio for digital LE Forwards contracts. Proprietary matching and rating algorithms ensure buyers and sellers align on critical service and performance requirements. Smart, standardized contracts and active monitoring ensure contractual obligations are honored. If either counterparty’s needs change, LE’s trading platform provides the liquidity to close out respective positions.

Outside of the spot market and dedicated fleets, the majority of truckload spend in the U.S. is still managed through non-binding contacts. A shipper and carrier may agree to move 1,000 loads annually between Chicago and Los Angeles at a rate of $2.00/mile, but if the shipper tenders only 600 of those loads, the carrier is still expected to honor the contracted rate. Likewise, if the carrier accepts only 600 of 1,000 tendered loads, or simply refuses to honor the contract rate, the shipper’s only option is to find another carrier, potentially at a much higher price.

Under the LE Forwards model, if a shipper and carrier enter into a four-month contract to move four loads per day during a known demand spike on a given lane; the contract is a binding commitment. In other words, if the shipper tenders only two loads, it still owes the carrier for the other two loads. If the carrier fails to accept a load, it is responsible for paying the difference between their contract rate and the rate at which the shipper moves the load with another carrier. The committed volume of LE Forwards behaves more like short-term dedicated fleet contracts than a traditional RFP award, allowing both carrier and shipper to reduce costs.

Here’s what else we know:

  • Carrier’s hedge against idle equipment: When planning to serve the LE Forward, the carrier need no longer hedges against the possibility that failure to tender a shipment will render assets idle
  • Unplanned deadhead/empty miles: By having more predictable volume, carriers can plan equipment availability to avoid last-minute scrambles and the associated empty miles that die to repositioning
  • Shipper’s spot market exposure if carrier does not accept tender: When carriers fail to accept a tendered load, shippers are often forced to resort to the spot market at much higher prices than their contracted RFP rates.
  • Driver attrition/replacement: Committed loads allow carriers to plan and route more effectively, generating more driver friendly freight

Early results form LE’s work with a select set of large shippers, carriers and 3PLs have been promising. LE has processed more than $3 billion in annual shipments from blue-chip companies, identifying more than 350,000 contracting opportunities. Since LE’s beta platform launch, the company has offered more than 15,000 contracting opportunities to buyers and sellers.

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