The Doctor Is In: A Conversation with Dr. Angi Acocella

Welcome back to another episode of More Than a Broker.

In this episode, Spot Co-founder Andrew Elsener interviews Dr. Angi Acocella, a Transportation, Logistics, and Operations Management researcher at the School of Economics and Management of Tilburg University in the Netherlands. Dr. Acocella is also an alum of MIT, Rensselaer Polytechnic Institute, and worked as a Research Associate and Case Writer at Harvard Business School. 

Listen to learn more about price impacts and the relationship between Shippers and Carriers.    

Transcript

[00:00:00] Andrew Elsner: Welcome to More Than a Broker, the podcast that goes beyond the traditional definition of a logistics provider. My name is Andrew Elsener, co founder of Spot. In each episode, we will dive into the stories of industry experts, keep you up to date on the highs and lows of the logistics marketplace, and introduce you to the people behind the advanced technologies that are driving innovation for brokers, shippers, and carriers within our industry. Join us as we explore the world of logistics through a different lens. This is More Than a Broker

Andrew Elsner Welcome to another episode of More Than a Broker. Today on the podcast, we have a special guest to shed light on the relationships between shippers and carriers. And how it impacts the logistics industry. I am thrilled to introduce Dr. Angie Acocelia. Dr. Acocelia brings a wealth of expertise to the table with a PhD in civil engineering from MIT.

Her research dives deep into the factors that impact pricing and performance within the freight industry.

So we are a 3PL based out of Indy. We manage a billion dollars in freight spend across the country. We're pure 3PL play, but most of our 84 percent of our business is all contractual. So we're mostly middle, short mile, about 20 percent drop trailer. So when I saw your article, I was, became very interested because I fly across the country, we're mostly fortune 100.

And the question I get constantly are a couple of things. One, should we be loyal to you in 2023 and beyond? And then their strategies have all like adapted to change. And so then the question is. Does reciprocity actually exist? And will you guys treat us fair when the market flips back sometime late 24' 25' and keep maintaining those levels?

When I came across your articles, I love this and it was written in 2019, wasn't it? 

[00:02:15] Angie Acocelia: Yeah. So it was back, it was talking about the 2017, 2018 tight market. But the thing is this, is timeless, right? So it's, it, these cycles just keep happening. So it's nice that it continues to apply. 

[00:02:26] Andrew Elsner: Can you walk through how you got into transportation research?

[00:02:30] Angie Acocelia: Before my PhD, I was actually working in energy systems and I was working on some problems on basically transporting fuel and how there were issues in, the oil fields where we're drilling for oil to the refineries, there were a lot of issues, right? And as I thought more about the problem and took a step back, I realized it was a transportation issue more than a kind of an energy problem or a technology problem.

And that got me thinking more about transportation and supply chain as a direction to continue to go into. So I liked research, I wanted to do my PhD and that was what I decided I wanted to go into. logistics for me was really interesting because it's a problem that is something that every industry has to deal with, right?

Logistics and supply chain transportation. Every single company needs to deal with this. And that for me was very interesting.

[00:03:18] Andrew Elsner: So how did you come up with the elephants versus goldfish? How are you drawn to that? Cause that's, it's an interesting topic. And it's one that since I got in this in oh three, it's the same conversation every two years.

[00:03:28] Angie Acocelia: The idea of the topic came about in 2017 when we were going into this type market. And we were, getting questions around should there be shippers of choice? Does it make sense for me to be investing in the past in order to make sure that I'm maintaining relationships or having carriers prioritize my freight going forward?

So there was a lot of talk around, yes, the relationships matter. And make sure that you're investing in those relationships. And we wanted to say, let's put some numbers and some data around it. And what are the things that actually are important versus saying, relationships matter.

And so it really came from just industries talking about this problem and us saying, let's look into it. Let's dive a little more deeply into it. We have the means to do it as a research facility. 

[00:04:14] Andrew Elsner: So when you go about to do this research, how much data did you have? Because the first question is like, how big was this data set? How many shippers? It had to be massive. 

[00:04:22] Angie Acocelia: So we're working with CH Robinson, but their managed transportation services, 

[00:04:26] Andrew Elsner: TMC? 

[00:04:26] Angie Acocelia: Yeah, TMC. Exactly. Again, as a brokerage, they're very interested in these types of questions as well. And so we were working with TMC and essentially we had all of the data from about 70 different shippers over about five years, right?

So from 2015 to current at the time was 2017. And then into the project went into 2019. So we did it through 2019, but it was all of their contracted shipments between those 70 or so shippers and all of their carriers across North America. It ended up a couple million transactions, right? What was also really nice about this data set so not only is it the transaction, the contract price, we had the entire waterfall of acceptance and rejections, right? So we know the price of the load is being offered at. Whether that carrier is accepting it or rejecting it and all the way down until it gets accepted, including on the Spot Market, right? We really detailed data on those carrier decisions and over time and across lanes, a massive data set that was, that was very fun to, to dive into a very lucky to also be able to access that. 

[00:05:33] Andrew Elsner: Yeah, that would be pretty cool. So I guess in short, after all the research, can relationships be quantified? 

[00:05:38] Angie Acocelia: So we break it down into some operational factors and some kind of relational factors, right? The operational being. What demand pattern? So are you consistently offering on particular lanes or is it very infrequent, volatile demand, right? The price competitiveness, right? So the contract price relative, what is the going market? And then relational also just being long term relationships, right?

How long have you been. a contracted carrier with that shipper across the board. We aggregated across the network rather than just on a lane by lane because we're trying to measure relational aspects, right? So we wanted to make sure that it was a shipper carrier contracted pair over time. So yeah, so, in all else equal, relationships do matter, right?

So the longer relationship is the better acceptance. We, measured primary carrier or contracted carrier acceptance rates during that tight market. All else equal, longer relationships are better in terms of how long has that relationship been. However, if you look at demand patterns, and most importantly, the contract price relative to benchmark prices, That's where you start to see differences.

So ultimately we found that carriers during a tight market are mostly looking at what is the shipper doing during that tight market, not during the previous soft market. And the things were keeping your contract prices competitive with the going market, which means not just setting your price and leaving it and hope, trying to lock in low prices during the soft market.

and consistent demand patterns. So is it more easy for your carriers to be able to accept that freight? They're most likely going to be prioritizing freight that's easier to manage their networks during that tight market. 

[00:07:23] Andrew Elsner: In the research I was looking at, you looked at market changes. If I'm a shipper, Is there a way to look at and see when a market did shift?

So like you went from 15 to 17 and then into the 18 change. Is there something that if I'm a shipper I can look at and say, Hey, the market's shifted and these are the things that point 

to that? 

[00:07:42] Angie Acocelia: Yeah, so I guess there's two ways to do it. We were lucky in that we were looking historically and saying, Okay, I have these time series of data let's see structurally when does the market actually change? And I could talk about that in a moment. The other being. Given today, do I think the market is going to change or changing? And we see lots of people speculating on that today. And I think it's a very challenging issue. So I may not actually speculate on that particular thing.

But what we looked at was both the average cost per load contract cost per load. particularly relative to Spot, right? So we know that when contract prices start to dip below Spot prices, the market is changing, right? We also looked at average acceptance rates across the board as well. And so that being that, yes, there may be more volume coming in, but what are contracted carriers? What is their average acceptance rate? And as that starts to go down, of course we're going into a tight market. And so what we did is structurally identify statistically, when does the average and the trend of those two time series change, right? So we can actually statistically pinpoint when does the market actually change.

And then we look at before and after those time periods where the market is changing, we can define a soft market versus the tight market in that data series. 2016, 2015, Versus 2017 2018. 

[00:09:01] Andrew Elsner: So when you look at shippers, could you see differences to saying, Hey, some shippers carriers performed in primary tender acceptance high in the soft market, and then they perform the same. And then if you look at it, if I'm a shipper today, the question I get all across the country is what should I do now to ensure that it goes the same in 25 or late 24? What did you see in that sense? Did it matter if you paid more in the soft market? 

[00:09:27] Angie Acocelia: So it was more important that you're keeping those consistent during the tight market. Of course, if you see higher acceptance rates from your carriers in a soft market, there is a correlation to higher acceptance rates in the tight market, all else equal, right? So if you already see strong performance from your carriers, you're going to see strong performance in the tight market.

In particular, there's keeping that contract price competitive going forward. So like I said, there's this sometimes knee jerk reaction to put in a price and say, I want to get my, my prices in low while we're still in a soft market so that I can lock them in later. That's not going to be something that's going to keep your carriers. In line accepting your freight over the course of of that tight market. So really it's I would say it's carving out in your network. Where do you need to see high performance going into the tight market? And that's where you should be looking at maybe shorter term contracts or evaluating the performance of those lanes going into the tight market where you you need to have that performance. Maybe on your lower volume, maybe on your, less important lanes. It's okay to be seeing lower acceptance rates and maybe having to rely on the Spot Market. Because, total volume is not there, right? So relying on the Spot Market for these smaller lanes, you have five to ten loads in a year, that's maybe not going to be important.

But these really high importance, consistent lanes, high volume lanes, that's where you need to be putting more of your effort anyway. We've actually been doing some research also on just the procurement event, forget markets, just the procurement event. What should even go into the procurement event? What should you be contracting out versus not? And we're looking at some other questions as well, but again, these high volume lanes, focus most of your attention on the 20 percent of lanes that have 80 percent of your volume. That's where you're going to need to be managing it a little more closely. 

[00:11:14] Andrew Elsner: Did you see, when you guys were looking at the changes soft to tight, did you see a change in the number of carriers that, that the shipper would contract? And what do you think that, that reason is? 

[00:11:24] Angie Acocelia: We did see shippers using more of larger carriers during those tight markets, right? So closing off the, the core carrier base and really just focusing on them because there is some aspect of a relationship there. So those maybe more regional carriers. Maybe they're not available anymore, right? Maybe they've gone to focus on different areas, things like this. So we do see shippers actually focusing a little bit more on Their core carriers that they have a stronger relationship with. Probably they have a little bit better ability to negotiate prices and things like this during the tight market, but we didn't really look, explore that too much in detail.

[00:11:59] Andrew Elsner: I guess I was curious if you think that during a soft market, they bring more providers in or more willing to lossly versus in that tight market, the core that takes most of the volume. 

[00:12:09] Angie Acocelia: Yeah, we do. As I was saying, and actually another research project we had, we were looking at what should be contracted versus not. And in a soft market, we do see that there's a lot more lanes that are bid out that don't end up materializing. There's a lot more that shippers are willing to, to play around with in a soft market. So yeah, they're likely bringing in more carriers, testing out new carriers, adding new lanes into a network that may or may not actually materialize. So we do see that more in the soft market. 

[00:12:38] Andrew Elsner: You bring something up and I think you call them ghost lanes. And I guess if you could define that for people, shippers listening, what a ghost lane is. 

[00:12:47] Angie Acocelia: A ghost lane is, as we've defined it, is lanes that are procured during that annual bid event that never end up actually materializing volume, right? So there's a contract in place with a carrier, no volume ends up materializing. And maybe we can get into this if you want to, but, but the problem is that one from the shipper side, you're putting a lot of effort into the procurement event, right? These are months long processes and from the carrier side, they're expecting business. They're also putting effort into responding to these bids, right? They're expecting business on these lanes and potentially building their networks around them. And we actually find that 70 percent of lanes across the board never end up materializing. So 70 percent of lanes are ghost lanes. Shocking, right?

We checked that number a number of times just to make sure. So that then leads to questions of, is there, again, back to reciprocity, is there, are there repercussions for doing that from your carriers, who are expecting business on those lanes? Are there cost repercussions? And the contracts that are put in place, are they, essentially, it's a risk mitigation strategy, so shippers are trying to stay on the Spot Market by setting up contract prices.

Are those contract prices any good, right? Are you actually getting better prices than the spot prices that, if you were going to use those lanes or not, right? So we explored all of those questions in that research, and so that's, that's been some really interesting stuff, and I've started to work with some companies to try to implement these strategies and try to, can we carve out some lanes that don't need to be there? Can we characterize those lanes that don't need to be in that, in the bid? 

[00:14:18] Andrew Elsner: It's interesting to look at some of the bids we get. If they have vendors that deliver potential STO activity, the stock transfer activity they don't plan for, or out of orbit shipping support plants that they don't know is going to happen, but they budget for. We see it constantly and you're awarded it. And if it does happen, you may see it for, for a few shipments. 

[00:14:37] Angie Acocelia: That's also from the carrier side. What we actually found is that, carriers get a sense of how much volume is likely to materialize, right? They're not, they know what they're doing. And so not only are they often baking that risk into the contract price, the contract price is higher. But they may not accept that freight when it comes in anyway, because they just not actually planned for it, right? there are actually repercussions there. Again, there's reciprocity there of if you're not sharing enough information and, and being clear about what's going to actually materialize, you're not going to see good performance.

[00:15:09] Andrew Elsner: So from your point of view, do you think shippers should expand? Because a lot of times on, on bids, we'll get the five digit zip and then we get the annual volume, no cadence or dispersion data. It's just literally, it's a flat volume in your eyes should a shipper take that and tell it by the week volume?

[00:15:27] Angie Acocelia: There's a trade off, right? Because too much information may not be good anyway, right? It can be just junk information. I think a little bit more information could be better, right? So what I've also heard is that a lot of shippers will just take what happened last year and just say that's, that's what the volume is going to be, right?

That's maybe not ideal, but I don't think we should be very precise in the, the forecasting, right? Because all forecasts are going to be wrong anyway. I think what needs to happen more is the shipper needs to have a better sense of what their demand expectations are going to be and what they do know they can communicate a little bit better because at the end of the day during these bids, there's an incentive for shippers to overestimate the volume that they're going to have on lanes because then carriers take it more seriously, right? But also carriers. Have to bid on more than they maybe had actual capacity, right? So there's actually a from both sides, poor communication of information or mismatch of information. So I think there's a way where both sides can be sharing a little bit more information in order to then align their incentives a little bit better.

[00:16:28] Andrew Elsner: I was curious what your thoughts are on our industry as a whole. It's one of the few industries where you get a contract, I say I'm going to do something, but I really don't have to do anything and you don't have to give me anything either. And so I was curious if you think that impacts the industry and impacts behavior as a whole.

[00:16:44] Angie Acocelia: Yeah, I think it does. So that is a very unique aspect to this industry. And particularly because the realities of the industry make it that way, right? So shippers know that they cannot specifically expect to forecast their demand very precisely for the next year, right? So back to your question of should we give carriers weekly volume expectations, again, that may not be great information because it's hard to know really precisely. And from the carrier side, they're responding to those shippers demand, many shippers demand, right? So they can't necessarily. say that, yes, I will have capacity every single time that you, you need it, right? You tender a load. So that's why, those contracts need to be that way. Where I see it is that the same type of contract doesn't need to apply to every single lane.

So those types of contracts are fine for high volume, consistent volume or consistent demand lanes, right? Because, there's going to be a little, you need a little bit of wiggle room, both sides need a little bit of wiggle room, but you can plan for them, right? For lanes that are really inconsistent, for lanes that are low volume or there's just not information, maybe a shipper has set up a new facility and so they don't have historical demand patterns to go by. That's another one that we looked at in this ghost lanes was new lanes. That's where we need to have a different type of contracting mechanism, or rely more strategically on the Spot Market before we then set up a contract so that we can gather some more information. So that's some of the new research I'm looking into is the long term fixed price contract and the non binding nature of it.

There's reasons for it and there's a place for it, but we shouldn't be applying that same contract across the board. All lanes are not created equal, right? And that's where we get into some segmentation and alternative contracts and things like that, where I think there can be made a lot of benefit. In fact, some of the research is showing that there can be benefit for both sides.

[00:18:34] Andrew Elsner: I like you wrote something on segmentation, ghost lanes, and gave different methodologies for looking at this. And a lot of shippers pre 2020, it was you bid everything, you set a budget, you don't want to have any slippage north of the budget. So one of the things that a lot of shippers ask, when you look at this, is there a volume number? Is there a cadence or frequency number that you would set in segment lanes and say, this one should be on a fixed contract. And then if I start working our way down what should not and how it would look, starting at the core, is there mileage bands less than 300, less than 280? Is it, I think you put 30 times a month or more? Or is it 95 percent of the weeks? What should a shipper look at and say? Contractable 

[00:19:20] Angie Acocelia: All questions that we're still trying to explore and have good answers on, but I think the main being, so there's, there's different. metrics to look at. One is total volume, of course. And then the second is how is that total volume spaced along the year?

There's frequency, right? So how frequently is it, is it 10 loads every Monday or is it one load every day? Those are two very different lanes, so the frequency versus the consistency of the lane, I would say that in the research, the research may be different depending on, the specifics of the shipper, but at least 10 to 20 loads per week, right?

This is where at least when I'm working with shippers and saying, presenting the research and asking how they're implementing it, they're saying, take everything less than 10 loads per week out of the bid. We don't need to set up a contract for that. And then maybe more strategically rely on Spot Market or kind of an internal Spot Market with our core carriers, right? I think distance, we have, I actually have not looked into distance, but typically longer haul is going to be, you need to be able to look at how does your carrier, is there a backhaul available? And is your carrier a regional carrier and they want to stay local versus is it much more of a longer haul carrier?

All of that is to say that, you need to be working with your carrier a little bit more to understand these things and build that into what is the right way to contract with them. The other thing I was actually going to say about budget, so not quite your question, but you brought it up about budget.

We do also see that, again, there's a kind of an inflation of the number of lanes, back to ghost lane, there's an inflation of the number of lanes that are procured during that bid event during a particular soft market, particularly because shippers want to increase their transportation budget, right?

Maybe they know that a large majority or a large fraction of those lanes are not going to materialize. But if I have at least a contract in place, the budget is there. And I know that I, if I go higher on some of my other leads, it's not going to, it's just going to even out because I've budgeted for lanes that don't materialize.

That's also something that I think is, is worth looking into a little bit because. You also have kind of internal conflicts where transportation and procurement have different incentives at the bid event. And so you sometimes then get these outcomes that are not good for either side. So again, back to also we were talking about, communicating information. It causes a lot of these issues that I think if we think a little bit more about what information do we need, how do we segment the network so that we focus in on the important ones, we can improve the process a little bit more and the outcomes, the ultimate outcomes, which is what we're trying to do.

[00:21:55] Andrew Elsner: In a soft market, you guys, you did a survey. What percent of primary acceptance is it 95%, 90 percent the target, and then in a very tight market, did you see it drop down pretty significantly? 

[00:22:07] Angie Acocelia: Yeah, on average, it's 60, 70 percent across the board. 

[00:22:11] Andrew Elsner: If I'm a shipper, what's the cost on average? Did you guys look at that to say, hey, primary didn't accept my average cost?

[00:22:18] Angie Acocelia: So in a tight market, on average, costs can, your costs can be upwards of either 9 percent if your, first carrier is rejecting, but you're going to your second carrier, up to 30 percent if you're really relying a lot on the Spot Market. So of course, you're, you're going to have higher prices. Now, were your contract prices set too low to begin with, that's also part of it, right? You're maybe 30 percent above your contract price, but that contract price should have been higher to begin with because you set it in the soft market. 

[00:22:47] Andrew Elsner: So we are seeing a lot shippers coming in saying, we want to capture, they had gone to quarterly bids, some to six months. And now they're coming back saying we'd like to capture rates now and go 12 months from here. And our SLAs are going to be very high. What would you say to somebody that came to you and said, as a shipper, What should I do now? Because the market index is going to tell me I should be low. 

[00:23:08] Angie Acocelia: It should be right now, but you cannot lock it in for 12 months because, at the end of the day, that contract price is not going to hold. So you may have a contract price at a low rate, but it's, your carriers are not going to be accepting it at that. So I would say, probably not more than quarterly looking at, updating that price. It doesn't have to necessarily move a lot, right? Maybe you can agree with your carriers on some collar around how much it's going to go up or down, but you can set the price, but it's not going to hold. You're not going to be paying that price going into the tight market. 

[00:23:37] Andrew Elsner: So you had an interesting thought. So you went through set volume, frequency, the cadence, everything lines up to be a very dense lane, whether it's low mileage, high density, high frequency spot market was the old way. So you just went down. What we call, there's two methods. It was SRG, standard routing guide freight would fall down, waterfall, and then now go to the Spot Market. So now in today's Spot Market, we do API pricing or, or humans still do for shippers. You wrote something about market index pricing. We've seen it from one large shipper that tried it and said, this is a pilot. Would you try it? So we tried it. Can you walk through, because a lot of shippers don't know what it is, or maybe know what it is, but does it even really work, and does anybody actually even put it into play? what it is, and how it's played. 

[00:24:24] Angie Acocelia: So essentially what it is, is setting a contract price that moves with the market. So you find some index that moves with the market, right? You have many that are out there that are freely available at a national level. You can also have lane level, just a value that changes. You can think of, this is actually very common with fuel surcharges, right? So this, I think a lot of people are very, very familiar with that. As the fuel price changes, you pay your carrier a different price depending on the week in which that, or the day in which that load was moved. Same thing with contract prices. You, there's DAT, CAS, producer price indexes. You can name all sorts of indices. One challenge is also agreeing with your carrier which index actually represents that freight, but we'll table that for a moment.

So essentially, for each contract lane, you have a price that moves with the market. And you set it during a soft market, in a few months, the next quarter, you can update it and say, the index has changed, we've agreed on this mechanism, such that the contract price will increase relative to the index price, and you move on. Rather than having to renegotiate, you upfront decide. We're going to follow this index. So the pros there are, again, you have a fair price back to having, making sure that you have a contract price that's competitive with the market. You as the shipper and the carrier don't have to come together and negotiate every time you want to change the price.

You agree upfront. Then you have a longer, you have that longterm relationship. You have your carrier that you know that you vetted that is going to show up on time and all these things. You're not relying on backups in the spot market. Because the spot market can also be much more volatile than whatever index that you're moving with.

There are, of course, downsides, right? So That means that both sides need to agree to hang on to that contract through the market. So if I'm a shipper and I set it now and contract prices are going up, I can't say, okay, no, I don't want to follow it. And vice versa, if we set it and the prices have gone up and then prices start going down in a soft market, the carrier can't say, no, I don't want to honor this contract anymore. So it does require some level of kind of trust between the shipper and carrier that you're going to, you're going to hold through the market, right? And not just leave when, when the market is no longer in your favor. Some of the things we looked at were, how do you even design it? I think that was the biggest thing when we were doing this research was how do you design it? What are the things that you need to consider? So first being what is the index, right? Is it a national index versus a lane specific index? Where do you start the price, right? How frequently should you update it? And there's mathematically optimal, or at least through our simulations, what's the best way to do it. But then there's also practical implications of how you do it. So for example, I was working also with a shipper who was going to pilot this, who piloted index pricing. And one of the things they found was just the free, I think they were updating it every month or so, but the frequency of even doing that was quite a lot.

And TMSs are not really built to have prices updated all the time, so you have to manually go in as if you run a bid and re enter all this information or at least re enter the prices for each carrier every month. And so they were only doing that on 10 lanes. Imagine thousands of lanes. So that was one implementation challenge. That's all to say. So we looked at Essentially, other questions around, which types of carriers are best suited for index based pricing, which lanes, right back to segmentation, what demand patterns and lanes are better and things like that. And essentially what we wanted to see was, is there a Pareto improvement where both the shipper and the carrier are better off? So the shipper gets higher acceptance rates and pays less than the long term fixed price contract and the carrier has higher revenue as a result of their acceptance. Higher acceptance with that index based contract. So we wanted to see can both parties be better off, right? Because you need both sides to be able to long term be happy to stay with this contract.

And so back to demand patterns, the biggest was these very infrequent and inconsistent, volatile demand lanes, right? Again, this long term fixed price contract makes sense on these high volume consistent pattern lanes. Where index based pricing, really, we saw value for both sides was the likelihood of accepting, so essentially we built a big model of the likelihood a carrier is going to accept each individual lane based on lots of characteristics in our dataset. Then we can say, okay, for these particular demand pattern lanes, The likelihood is very low, but if you increase the price relative to the index, actually that, that acceptance rate goes up. Shipper pays less than they would have on the Spot Market if the carrier had rejected, and the carrier gets a higher price than if they had rejected that low, right? Because now they're getting revenue from that later. 

[00:29:07] Andrew Elsner: So in that, in that instance, the person put a rate on, would have put a rate on file or agreed upon something at the beginning of this time period, but the index updated. I was awarded so many loads, and this is an infrequent demand pattern, move 20 times a year, 15 times a year.

[00:29:23] Angie Acocelia: But that additional kind of price above the contract as the market changes. Was enough incentive to have a higher acceptance probability. 

[00:29:32] Andrew Elsner: So did you compare what spot market cost if somebody went out to the spot market versus using an index based pricing tool? What was the difference there? Where am I better off?

[00:29:42] Angie Acocelia: For these inconsistent lanes, again, it comes back to how do you design the whole thing? You can also design that, I want to make sure that the contract price is still always, the indexed contract price is still always You know, some percentage with, within some percentage, right? So maybe not always going all the way down or all the way up with the spot market. The results are a little bit sensitive to that, but essentially we can make sure that your, the, the contract price, the index contract price is still going to be better off for both parties, right? The shipper will pay less and the carrier will get more. Because they're getting more consistent volume, or I shouldn't say consistent, but they're getting real volume from these lanes that they would otherwise still have to find volume for on the spot market, which is not necessarily guaranteed depending on, on the market and where they are and things like this.

[00:30:29] Andrew Elsner: So essentially, if you set a baseline, you're moving up a percentage, three, 5 percent from the unagreed upon and a lagging thing. Was it difficult for people with TMSs to, to manage this or they have to put separate line items in to adjust? 

[00:30:43] Angie Acocelia: Yeah, that was, I think, the biggest thing that was just, every month when they wanted to up, again, it was month and maybe it shouldn't have been monthly, but so they had to go in and every time update that price for every lane, which is not, not ideal.

And essentially, index based pricing, part of the appeal is to reduce the amount of Work and effort in these bid events. So if you have to, maybe not bidding them every month or every quarter, but to have to go into the TMS, that that's where it really became problematic. maybe these API pricing, that's where I think that can become a lot more valuable because you can just link that right to the TMS.

[00:31:20] Andrew Elsner: Did you get any feedback on, on companies that try to set budgets on an annual basis, transportation budgets on an index based pricing tool? How do they account for that? 

[00:31:30] Angie Acocelia: So we only really worked with, so one in particular we worked with, they were just piloting it to get a sense of it. The ones that I've seen that I've rolled out a little bit more widespread. They were looking at, okay, there's, there's a cap, right? I don't want to pay above a certain amount. So that's how they budgeted. They said, okay, let's say all of it or some percentage of it goes to add that capital, we will not pay more. And then that's how, yeah, that was how they budgeted for it.

[00:31:55] Andrew Elsner: And then on the cap, you'd go to the spot market or re tender role. So in a, a company comes and says, all right, we're going to do this percentage. and today moving forward, there's so many lanes that we'll go through a bid event and, and you're saying less lanes that actually run high density, high frequency, are you suggesting on the other ones go out to the spot market, run them, and then how would you run that? Then run many bids and then contract them forward. What, what's your strategy? 

[00:32:21] Angie Acocelia: Yeah, so I would say of the lanes that are not, that are not going to do well under the long term fixed price contract, there's a number of options, right? You can think of index based pricing as sort of mini bids, right? They're similar to that in that in a mini bid, you're just re bidding every, however frequently you want to. Index based pricing, you're not necessarily bidding it out, it's just a, a price that the market tells you it should be. However, a bid really is telling you what is the market price for my lane at that time anyway, right? And then all the way just using spot, right? Spot is a, immediate, what is the, the market price?

I would say all three of those kind of fall under the same bucket of pricing mechanism. The differences between them may be, so for index based pricing versus spot, pure spot, index based pricing, you have the carrier, you've contracted, you're vetted, they're, they're historically, they know your facilities, things like this.

Whereas in, in pure spot, you don't necessarily know who's going to get your, your load. Maybe you're, you're just running spot with some core carriers and that's different. But you, you have a little bit, I've found that shippers feel they have a little bit more control with index based pricing versus spot, right?

Mini biddings sits in the middle, right? Where you have your core carriers that you want to invite to the bid. You choose as the shipper, of course, which carrier and what price you're actually going to, you're actually going to bid, but it does have its costs, right? It's, you need to still sit and run your bid and decide who the winning carrier is and all of this, and then update your TMS.

So there's, there's pros and cons to all three of them, but I would say all three of those kind of fall under the same What you should do for lanes that are inconsistent and low volume. 

[00:34:03] Andrew Elsner: Back to the goldfish and elephant. If I'm a shipper and I go out and try to plan to create more elephants, is it strictly just paying what market is that time? I mean, is there anything else really that says in your, in your data that came out, there are some that perform better, but is it just rate? 

[00:34:22] Angie Acocelia: That is the biggest one. Honestly, that is the biggest one. The others being that are, that are still going to be effective, right? Are going to be. Back to this lane volume. So one thing that we also see that is effective is say you have inconsistent volume or you have a lane where, maybe you have a lot of surge volume or seasonality. Contract out that base volume and then have some additional surcharges for, for surge. Volume base, this is essentially volume, tiered volume pricing, right?

That is also effective in that setting, right? So you Create a more consistent lane that's contracted, and then the additional stuff, maybe it's with your same carrier, you just add an additional surcharge to it, or you go to the spot market, right? So that's, that's one thing that we've seen.

Another was actually, was quite interesting. was dwell time at your drop off facility. So that one was, I thought it was quite interesting because essentially what we found was that for shippers that typically have lower dwell time at their drop off facilities, it could be their own facilities, it could be their customers facilities.

We didn't differentiate between those, right? That also impacted carriers, or had a, had a better acceptance rate from carriers. Essentially, that allows carriers, load dwell allows carriers to get to their next load. So it's actually really impacting their operations and the way that they're balancing their network.

And that was another impactful factor. So shippers are going to have more control over their own facilities, right? This is an opportunity to identify your facilities that maybe are not performing well for some reason, right? They're holding up your carriers for some reason and look into, are there internal operations that can be improved?

Do we need to switch to, from live load, unload to drop. And if it's your customers. facilities, then, can you work with your customers? Because this is going to really impact, this is actually impacting your transportation performance. So that I thought was really interesting. And it was particularly the drop off facilities and not the pickup facilities, because we found that carriers can make up some time between pickup and drop off. It's really that drop off facility is where it's going to impact their next customer. 

[00:36:30] Andrew Elsner: Did you look at any regionality in that? For instance, does the southeast or northeast? 

[00:36:34] Angie Acocelia: Yeah, we didn't get really specific into it, but in general, different geographic regions of the U. S. didn't seem to be that different across the board.

But I can imagine that, I should say, so different regions, of course, have holding all else equal are going to be very different in terms of acceptance and pricing because of the, the differences across the country, right? Where you have great sources and sinks, essentially dwell time. On top of that, didn't seem to be impacted. It was really more regional characteristics are going to be regional characteristics no matter what. 

[00:37:04] Andrew Elsner: Because we find sometimes that that, because we measure that, that cost over time, and some, some parts of the country where freight is more of a sink, I think as you called it, but they're less likely to charge more the next time. But also due to the regionality in the area, but it is a question I get a lot post COVID is worker shortage at a lot of the refrigerated warehouses, food warehouses, cross docks, some of the unloading got up to 7, 10, 11 hours per load. What is the cost impact do you think to a shipper over time? Did you guys quantify that at all?

[00:37:37] Angie Acocelia: We saw two hours was really the cutoff, right? Two hours is when you start to see performance. issues. And this is where you start to get lower acceptance from your carriers across the board. Again, it's not just on these particular facilities. It's your carrier is now going to have lower average acceptance across the board for your network.

And so this is where you start to get into, yeah, maybe your backup carrier. So that nine, 10 percent more, you may not necessarily need to go to the spot market as a result of this, but you're going to be relying on your backup carriers more often. 

[00:38:06] Andrew Elsner: When you guys looked at the data, did you look at carrier churn at all? So for from a shipper that performed worse versus better, did you look at the number of carriers that were turned over year to year to see how that impacted? 

[00:38:19] Angie Acocelia: No. For most of my research, I need this shipper carrier pair to be consistent across the board, so I actually hope to get rid of those carriers that don't.

There's some really great research I would suggest from a colleague of mine at MIT, Dave Carell, who does a lot of work on the driver initiative on. Driver turn, their experiences. So I would, I would say he has some really good work to look into on that, those questions. 

[00:38:41] Andrew Elsner: So what's your next area of research? So you've gone from reciprocity and then now into helping shippers set up a strategy to maintain cost. What's next? 

[00:38:52] Angie Acocelia: First of all, what's fair is I, I looked at carrier reciprocity from software type markets. It's only fair to look at shipper reciprocity, right? So are shippers, maintaining relationships and things like that.

Of course, again, there's a debate on that and I would love to get some data and really dive into that. So that's, that's actually, some ongoing work. I have some work on, essentially, most of my work is this shipper carrier relationship. Then, of course, brokers being one of those types of shipper, types of carriers.

We also have these digital brokers and is that a different type of model? How should shippers and carriers be thinking about utilizing them? Is there going to be a convergence of business models between the kind of traditional brokers? and the digital brokers. I think that's a really interesting question to, to look into.

Another area which, so I usually get to work with shippers and shipper data. I'd love to get to work with some carriers to look at some questions around, how are they working with shippers? How are they making decisions? Because a lot of the things that I model in my research is inferring based on shipper data.

So I'd love to get to work with some carriers on how are they responding to shippers decisions. How are they bidding? A lot of my research is around how do we improve the procurement process. So from a carrier's perspective, what information do they need to know? How are they responding to the information that shippers are giving them?

Because that can help both sides. Again, I think the incentives can be better aligned if the right information is shared. And I would love to work with some carriers on those types of questions. 

[00:40:22] Andrew Elsner: Yeah, that, that would be extremely interesting to see that. 

we love your work. Appreciate you taking time to talk to us. 

[00:40:29] Angie Acocelia: You can still let us know.

I really appreciate it.

[00:40:36] Andrew Elsner: And that's a wrap for More Than a Broker. You heard first hand accounts from industry experts and Spot's hard working individuals, revealing a culture of collaboration and innovation. For more information about Spot, our service offerings, our people and culture, our job postings and more, check us out online at spotinc.

com. That is spotinc. com. Thank you for listening and for being part of this journey. Until next time, keep striving to be more than a broker.