Elephants or goldfish?: An empirical analysis of carrier reciprocity in dynamic freight markets

Abstract

Dynamic macroeconomic conditions and non-binding truckload freight contracts enable both shippers and carriers to behave opportunistically. We present an empirical analysis of carrier reciprocity in the US truckload transportation sector to demonstrate whether consistent performance and fair pricing by shippers when markets are in their favor result in maintained primary carrier tender acceptance when markets turn. The results suggest carriers have short memories: they do not remember shippers' previous period pricing or tendering consistency when making freight acceptance decisions. However, carriers appear to be myopic and respond to shippers' current market period behaviors, ostensibly without regard to shippers' previous behaviors. truckload freight transportation, tender acceptance, market cycles

The end of 'set it and forget it' pricing? Opportunities for market-based freight contracts

“…The authors find that explicit contracts (those that have more formally defined service level expectations) as compared to implicit contracts illicit higher primary carrier acceptance rates from carriers. In addition, and similar to the findings by Acocella et al (2020), as the market tightens and becomes more attractive to carriers, the benefit seen by these explicit contracts diminishes.…”

“…The authors find that carriers are less willing to accept loads that are tendered at unpredictable frequencies. Moreover, Acocella et al (2020) demonstrate that primary carrier acceptance increases with the percentage of weeks in which loads are tendered to that carrier on that lane.…”

“…Not only is this price between shipper and backup carrier non-binding, it is likely higher than the primary carrier's price. Depending on prevailing market conditions, shippers price escalations with backup carriers reach more than 18% above the primary carrier's contracted price (Acocella et al 2020).…”

“…The impact of market dynamics on carriers' freight acceptance decision is studied in Acocella et al (2020). The authors consider two distinct market conditions: soft, where shippers have low demand relative to available capacity and thus corresponding low contract and spot prices, and tight, where demand for TL capacity outstrips supply and prices are high (spot prices typically exceed contract prices).…”

“…We include a continuous distance variable, which represents the carriers' variable costs (Ballou 1991, Scott 2015. Acocella et al (2020) further detail the price benchmarking methodology used here.…”