Transportation expenditures are not the same as other business costs. They’re influenced by various factors and not always in the same manner that other commodities your organization buys.
The one-of-a-kind nature of truckload transportation contracts is one of the reasons.
While these contracts are legally obligatory in terms of pricing, they are not in terms of the shipper’s volume or the carrier’s capacity. Shippers are not penalized financially if they fail to meet a volume commitment, and carriers are not required to accept all shipments.
Although there are measures that track primary carrier acceptance rates to represent the strength of a carrier relationship, failure to fulfill contracted quantities is not accompanied by a direct financial penalty. Instead, it risks severing the connection, which could result in the carrier losing future volumes.
Even if these contracts aren’t legally binding, they’ve long acted as dependable agreements, allowing each party to better plan for the coming year and laying the groundwork for mutually productive commercial ties.
However, when total capacity is limited, shippers stand an increased risk of some carriers refusing to honor agreed-upon pricing previously. When this happens, shippers’ first line of defense is alternative routing guides, followed by the spot market.
Alternatively, carriers could try to renegotiate higher rates or reroute their trucks to more profitable loads. This is a dangerous tactic for carriers, as it risks jeopardizing these beneficial, long-term relationships in reaction to favorable, short-term market conditions. Nonetheless, some shippers may find it difficult to resist, leaving them scurrying for last-minute spot market alternatives.
This procedure may provide shippers with leverage to demand better on-time delivery in exchange for paying higher rates, but it is still likely to result in budget deviations.
