Service Refusals in Supply Chains: Drivers and Deterrents of Freight Rejection

Abstract

Contracts in the for-hire trucking industry are unusual in that, although they establish prices for different services, there is typically no legally binding obligation or penalty for either party to offer or accept a load. When a load is rejected by all contract carriers, shippers must turn to the spot market, which can significantly increase supply chain costs. Because these transactions occur between private parties, data on load acceptances/rejections and contract/spot prices have not been available to academic researchers, leaving the freight rejection problem largely unexplored. We are able to examine this problem using a detailed transactional data set of a large national shipper. We estimate that spot prices for truckload services average about 62% higher than contract rates. We find key operational and economic factors to be drivers of freight rejection and the shipper-carrier relationship to be a deterrent to freight rejection. We also find that primary and secondary carriers respond differently to these operational and economic factors. We discuss how these insights could be used by a shipper to get better performance and lower cost from their carrier base.

The effect of firm size, asset ownership, and market prices on regulatory violations

“…To estimate the payoff associated with an intentional violation—where an intentional violation increases a driver's output, thereby allowing them to haul more loads—we calculate a geographically‐ and temporally‐varying index of spot prices for truckload services. Truckload spot prices are a good indicator of market conditions (Kirkeby, )—where spot indicates short‐term truckload service with no long‐term commitment between the parties (Scott et al, )—so we partnered with a large company who uses online auctions to procure spot transportation services. This dataset contains 514,696 bids on loads moving throughout the country from more than 100 brokers and carriers, and includes information such as where and when the loads begin and end, when the auctions were held, who placed the bid, and the long‐term contract prices for loads moving on the same origin and destination.…”

“…long-term commitment between the parties (Scott et al, 2017)-so we partnered with a large company who uses online auctions to procure spot transportation services. This dataset contains 514,696 bids on loads moving throughout the country from more than 100 brokers and carriers, and includes information such as where and when the loads begin and end, when the auctions were held, who placed the bid, and the long-term contract prices for loads moving on the same origin and destination.…”

“…Baucus (1994); Wathne and Heide (2000) Asset ownership Owner-operator Driver owns the truck and contracts with the company; otherwise, the driver is a company driver (employee). (2012) Scott (2015); Scott et al (2017) and asset ownership on violations, and in a robustness check we include VIN fixed effects (this reduces our sample considerably). As seen later in the results, the selection and treatment effects each explain roughly half of the effect of market prices on a driver's propensity to violate regulations.…”

Strategic Purity and Efficiency in the Motor Carrier Industry: A Multiyear Panel Investigation

“…This process takes time, with Hubbard (, p. 372) stating, “the investment necessary to line up consistent, complementary backhauls for a series of outbound hauls is commonly on the order of 60 man‐hours when the backhaul market is thick, and 2–4 times as much when it is thin.” These investments allow carriers to place better bids in strategic procurement auctions (Sheffi ) that are a cornerstone for establishing contract rates that fix the price (usually for one year) of 90% plus of TL shipments (Caplice ; Scott ; Scott et al. ). Identifying complementary lanes that take into consideration interhaul independence is critical, which is illustrated by Matt Harding's observation from Bowman () that, “Generally speaking, economies of scope are more important to carriers than economies of scale.…”

Carrier Bidding Behavior in Truckload Spot Auctions

“…Indeed, when capacity in the market is low relative to supply—as has recently been the case, with as many as 10 spot loads per available truck and shippers paying twice what they expected to pay (Smith )—the spot market becomes a vital source of capacity (Scott et al. ).…”