A Shift in Air Freight Sourcing Strategy

In 2020 we started to see dramatic drops in air cargo capacity, coupled with contracted rates previously negotiated with airlines through annual RFPs being discarded. Compounding the challenge was the reduction of flight connections beyond major hubs, which increases the need to source ground transportation. As a result, many buyers were left to rely on spot bidding with carriers to meet demand.?

While the spot bid market is still hot today, many shippers are wisely augmenting their strategy when securing air freight capacity.

"The New Normal" In Air Freight Sourcing

For the past couple of years, it was very difficult to secure longer-term contracts with carriers; however, with air freight pricing down 30% in Q1 2022, that is starting to change.? Several Keelvar customers are currently conducting large air freight bid events in excess of $100 million in spend with at least 1-year price commitments.? Many will also supplement their off-cycle spot bids using sourcing bots or mini bids.?

The combination of an annual bid event coupled with intelligent automation is an effective strategy if the annual bid event is using technology that contains some key components:

1. Ease of use: Carriers will not participate in bids utilizing old cumbersome bid tools; this cannot be underemphasized.
2. Weight break pricing: The ability to collect weight break pricing and apply the rates to applicable historical/projected shipments for an apples-to-apples comparison.? Keelvar has a bot for this too!
3. Systematic feedback:? Real-time systematically generated traffic light and text popup feedback is a win-win feature for both shippers and carriers.? This capability drives price compression and service level improvements.
4. Carrier performance factoring: Ability to factor in carrier performance metrics at the lane level. For example- only award carriers volume on a lane if they have an on-time delivery % greater than 95%.
5. Invite more carriers: Systematically there is no more work involved with inviting 300 carriers vs. 30 when using modern sourcing optimizer tools that can scale.? More carriers coupled with traffic light feedback can help drive substantial price compression.?
6. Optimization: Point & click scenario modeling allows shippers to find the right mix of price and non-price scenario rules.? Examples include carrier preferences on certain lanes, ensuring backup carriers, carrier capacity, carrier performance, CO2 emissions, and incumbency ratios.? A rich set of visualizations and reports reveals many insights.
7. Repeatability: The ability to quickly copy and update old projects, or even adjust and add on to existing projects makes managing today’s challenging market conditions much simpler. With today’s highly volatile market conditions purchasers need a way to adjust quickly and alter their strategy around pricing and contract length. Modern tools should make this a breeze so users can deftly switch between annual, quarterly, spot, and more as supply and demand change regularly.

?Keelvar’s?Sourcing Automation?gives real-world proof that yes, in the current volatile market conditions, esourcing software?solutions do indeed exist to help global shippers overcome the obstacles and efficiently keep their freight moving. Those combined benefits of air freight sourcing automation are real and compelling -- and need not be limited to just reactive spot bidding events.?

As we all echo the phrase “the new normal,” time will tell if these new sourcing practices backed by the right?procurement automation?technology will lead to a transformation of air freight sourcing practices for the long haul. At Keelvar, we believe it’s the next leg in the journey.

Read the full blog by Senior Solutions Analyst at Keelvar, David Siedt, here.

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