Analysis of truckload prices and rejection rates

Abstract

Truckload (TL) is the principle mode of freight transportation in the United Sates. Buyers of TL services are shippers with significant amount of shipments throughout a year. Due to the complexity of their network and the large expenditure on transportation, shippers select their carriers through auctions and using optimization methods, and enter into long-term contracts with winners with the best prices. Shippers subsequently request their carriers to fulfill shipment every time there's a load, a procedure called 'tender'. Despite the sophisticated selection and the existence of contracts, shippers' tenders are frequently rejected by their carriers, a phenomenon called tender rejection. When this happens, the shipper has to find alternative carriers and most of the time the price for the load increases. With weekly rejection rate as a dependent variable, and with variability of volume, length of haul, or the differential in prices as independent variables, this research mainly used the linear regression method to examine how well these independent variables account for rejections for a given lane. The analysis used the data including TL shipment and tender records of 17 shippers for five years. This research also attempted to discover any geographic patterns of frequent rejections. The analysis of the relationship between truckload rates and rejection rates suggested a potential trade-off between price and rejection, which questions the generally accepted strategy of shippers minimizing truckload expenditures by unconditionally reducing rejections.