Researched byErik CaldwellBryan Fisher

Advised byChris Caplice

Sponsored byC. H. Robinson Worldwide, Inc. 21 May 2008

The Impact of Tender Lead Timeon Truckload Transportation Rates

• Introduction

• Data Profile

• Transportation Cost Model

• Management Insights

Agenda

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Does the amount of time between when a load is tendered and when it must be picked up by the carrier affect the overall cost?

Research Question

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Caldwell and Fisher 21 May 2008 4

0.00

1.00

2.00

3.00

4.00

5.00

6.00Av

erag

e Lea

d Tim

e (D

ays)

Average Lead Time by Customer

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Median 2.8 DaysMean 3.4 Days

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$1.35

$1.40

$1.45

$1.50

$1.55

$1.60

$1.65

$1.70

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Aver

age R

ate

($/m

ile)

Lead Time (Days)

Average Rate by Lead Time

1313

0202OthersOthers

Industry Comparison

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Critical Baseball Factors

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Sold OutSold Out Home TeamHome Team Away TeamAway Team SignificanceSignificance

YESYES

NoNo

Critical Transportation Factors

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OriginOriginDestinationDestination Lead TimeLead Time

Less Than

One Day

Less Than

One Day

Greater Than Ten

Days

Greater Than Ten

Days

VolumeVolume

Ship Weekly

Ship Weekly

Ship Monthly

Ship Monthly

CarrierCarrier

Large National Carrier

Large National Carrier

Example Routing Guide

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Sequence Carrier Name Carrier Size Cost1 Carrier A Medium $9002 Carrier B Extra Large $9503 Carrier C Medium $1,2004 Carrier D Extra Large $1,2255 Carrier E Small $1,500

Lane: Memphis - Boston

• Shippers typically send the tender in sequence to the carriers in the routing guide.

• The first carrier rejects the tender 22% of the time and the shipper is forced to resort to more expensive carriers.

Impact of Lead Time

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0.85

0.90

0.95

1.00

1.05

1.10

1.15

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Cost

per

Mile

Inde

x (Ac

tual

CPM

/Lan

eAvg

CPM

)

Lead Time (days)

Cost per Mile Index by Lead Time

90th Percentile75th Percentile50th Percentile25th Percentile10th Percentile

Modeling Transportation Costs

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Contribution of Model Variables

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Variable % ContributionMiles 64.68%Destination 12.45%Constant 12.23%Origin 9.71%Lead Time 0.20%Tender Day of Week 0.20%Pickup Day of Week 0.20%Carrier Size 0.18%Frequency 0.16%Total 100.00%

• The controllable variables accounted for 0.94% of the predicted cost of loads.

< 1%

Impact of Model Scenarios

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Best Bonus Worst PenaltyCorridor Volume Daily -$ Annually 61.51$ Carrier Small/Medium -$ Extra Large 77.91$ Tender Day Wednesday (2.07)$ Saturday 49.23$ Pick Up Day Friday (1.54)$ Saturday 22.98$ Lead Time 12 Days or More (47.10)$ Less than 18 Hours 24.26$ Total (50.71)$ 235.89$

• These two extremes combined to make a $287 difference on a load that costs an average of $1019.

• Lead time differences between the best and worst customers accounted for an average of $42 per load – or 4.2% of the customer’s annual transportation spend.

Lead Time Effect in Transportation

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Variable Criteria Impact P Value0 to 8 hours 24.26$ 0.0099 to 16 hours 17.48$ 0.00717 to 59 hours Base Case3 to 5 days (15.34)$ 0.0006 to 8 days (24.51)$ 0.0009 to 11 days (38.68)$ 0.00012 or more days (47.10)$ 0.000

0.905

Transportation Model

Lead Time

Adjusted R2 Goodness of Fit

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0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2007

-120

07-3

2007

-520

07-7

2007

-920

07-1

120

07-1

320

07-1

520

07-1

720

07-1

920

07-2

120

07-2

320

07-2

520

07-2

720

07-2

920

07-3

120

07-3

320

07-3

520

07-3

720

07-3

920

07-4

120

07-4

320

07-4

520

07-4

720

07-4

920

07-5

1

Aver

age

Sequ

ence

Dep

th

Mor

gan

Stan

ley

Frei

ght I

ndex

Carrier Availability Impact on Sequence

Index (Left Axis) Average Sequence (4 Week Moving Average)

1.7

1.6

1.5

1.4

1.3

1.2

1.1

202007 Data

January June December

Impact of Carrier Availability

Management Insights

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Mitigating Lead Time Impact

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• Forecasting Transportation Requirements- Average Corridor Volume is 350 loads a year or 1.5 loads per work day. - High volume lanes substantially higher than the average with less deviation.

• Reducing Time between Tenders-Time between first and second tender averaged 10 hours.- Substantial loss of time due to end of work day after first tender sent.

Strategic Fleet Management

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• Strategic Approach to Exception Management- Private Fleet - Spot Market

• Carrier Tender Acceptance Performance Review

0.85

0.90

0.95

1.00

1.05

1.10

1.15

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Cost

per

Mile

Inde

x (Ac

tual

CPM

/Lan

eAvg

CPM

)

Lead Time (days)

Cost per Mile Index by Lead Time

90th Percentile75th Percentile50th Percentile25th Percentile10th Percentile

Conclusion

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• What do you call someone who comes into a company and quickly saves 4.1% of transportation spend by simply modifying a business policy with little risk and no capital investment?

Where I worked we would call that person a Hero.

Researched byErik CaldwellBryan Fisher

Advised byChris Caplice

Sponsored byC. H. Robinson Worldwide, Inc. 21 May 2008

The Impact of Tender Lead Timeon Truckload Transportation Rates