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The First 100 Days: How Logistics Teams Are Preparing For Tariffs

Jan 24, 2025 - forbes.com
The article discusses strategies for transportation and supply chain teams to manage price volatility and disruptions, particularly in light of new tariffs on U.S. trading partners. It introduces the "leaky bucket" framework, which describes the challenge of maintaining contracted capacity when spot market rates exceed annual contracted rates, leading to carriers opting for more profitable spot market opportunities. This results in enterprises needing to replace capacity at higher costs and with potentially less reliable carriers. The article suggests that the annual bid process contributes to this problem due to its inflexibility in adapting to market changes.

To address the "leaky bucket" issue, the article recommends moving to shorter contracts and more frequent quoting cycles for lanes with high volatility. By implementing quarterly contracts for certain lanes, enterprises can better align contracted rates with market changes and improve capacity utilization. The suggested approach involves running a regression analysis to identify volatile lanes, creating a market basket for quarterly rate updates, and communicating these changes to carriers. This proactive strategy aims to mitigate the impact of tariffs and other market disruptions by allowing transportation teams to adjust more quickly to changing conditions.

Key takeaways:

  • Enterprises face challenges with price volatility and contract utilization due to the "leaky bucket" problem in freight rates.
  • Annual logistics bids are complex and time-consuming, often leading to inefficiencies and missed opportunities in rate management.
  • Shorter contracts and more frequent quoting cycles can help mitigate the impact of price volatility and improve contract utilization.
  • Implementing quarterly contracts for lanes with high volatility can align contracted rates more closely with market changes, including tariffs.
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