Finding the right managed transportation provider involves understanding managed transportation pricing models and the range of services available. With the right managed transportation provider, shippers see an average of 20% in freight spend savings, based on Loadsmart's documented customer outcomes. The key is understanding which engagement model works best and having a clear view of managed transportation cost structure to avoid unnecessary expense.
Shippers' needs are varied, so managed transportation pricing models are flexible in response. Industry-wide, several engagement levels exist that shippers and managed transportation providers commonly use. These range from full outsourcing to modular services, depending on the complexity of the shipper's freight network.
When working out an initial agreement about pricing, managed transportation providers look at the shipper's network and the amount of work that needs to be done. Does the shipper need analytics and optimization? Are they looking for full end-to-end services, like carrier procurement and execution of deliveries? The amount of responsibility the managed transportation provider takes on for a shipper will greatly affect the final rates.
Managed transportation providers also offer different levels of pricing models for shippers, including:
Per Shipment: A pricing model where shippers pay a fixed rate per shipment moved.
Percentage of Freight Spend: Managed transportation providers charge a percentage of the shipper's total freight spend.
Fixed Monthly or Annual Contract: Shippers sign with a managed transportation provider to pay a monthly retainer or a fixed annual contract. Annual rates vary by company, network complexity, and scope of services.
Gain-Share: The managed transportation provider earns a percentage of the savings they bring to the shipper based on a defined formula.
Hybrid Models: Shippers and managed transportation providers can agree on a hybrid pricing model that combines options, such as a gain-share contract paired with a lower base fee.
Many shippers are moving away from the percentage of spend pricing models with their managed transportation providers. The percentage of spend is a straightforward pricing model that simplifies the shipping agreement.
However, some shippers see percentage of spend as creating misaligned incentives, where managed transportation providers are not directly rewarded for finding cost savings.
A fixed ACV is growing in popularity because it creates more stability for the shipper, while still allowing managed transportation providers to charge a fair price for estimated shipping costs over the course of the coming year. An experienced managed transportation provider can account for exceptions and surge capacity in their contract fee, while the shipper enjoys a fixed price that they can more easily fit into the budget.
Another consideration for shippers is the engagement level they want with a managed transportation provider. When considering managed transportation cost structure, the shipper needs to determine how much responsibility they want a transportation provider to take on.
Growing shippers with small or no internal transportation teams may need full-outsource managed transportation solutions. By letting the managed transportation provider take on the entire transportation network, your team can focus on building relationships with retailers or improving the business.
Co-managed and modular agreements allow shippers to outsource part of the responsibility for managing their transportation network. It is up to the shipper how much support they want. This can range from simple data analysis with optimization recommendations to a partnership where the managed transportation provider sources carriers and executes freight while the internal team oversees strategy.
Another engagement level that is emerging in the transportation industry is managed transportation autonomy. Providers use full-stack AI-driven technology to manage a transportation network with a minimum of manual intervention. These managed transportation providers work with AI, automation, and TMS to achieve their goals.
Loadsmart offers multiple engagement levels to shippers, depending on their needs, including Self-Service Execution, Collaborative Optimization, and Fully Managed 4PL services for shippers seeking full-outsource transportation management.
Turning to a managed transportation provider to handle freight fulfillment is a popular choice in today's market. Rising carrier rates and increasing fuel and shipping costs are impacting the budgets of shippers.
Shippers who work with managed transportation providers often see meaningful additional savings, even in tight markets, through better procurement, optimization, and audit recovery.
Managed transportation providers bring established carrier relationships, skilled experts who can identify inefficiencies, and cutting-edge TMS to optimize transportation options for customers.
When working with a shipper, the managed transportation provider helps recoup costs and find savings in multiple ways. Improved mode optimization and load consolidation reduce freight costs and improve scheduling efficiency. Improved carrier rates and increased tender acceptance provide more direct savings on shipping.
The managed transportation provider can also complete recovery audits to see where less visible fees and costs can be recouped within a shipper's transportation network.
Companies that want to incentivize their managed transportation provider to find savings and increase efficiencies may also want to consider a hybrid pricing model.
Creating a managed transportation cost structure that includes a baseline monthly retainer with a gain-share agreement allows shippers to pay for basic services while encouraging providers to find additional ROI for their client.
Shippers and managed transportation providers may also establish benchmarks that the provider needs to achieve as part of their baseline agreement. These baselines can include freight spend, cost per mile, and lane rates.
Once managed transportation providers hit their baseline KPI targets, the gain-share payments start to kick in. The percentage varies by shipping agreement.
The baseline freight spend may be about $10M, but if the managed transportation provider can limit spend to $9M, that is a cost savings of $1M. According to a standard gain-share agreement, the managed transportation provider would then earn a defined percentage of those savings as an additional payment.
A better understanding of managed transportation pricing models can give you a better position at the negotiation table. There's a lot to know about managed transportation contracts, but here are a few answers to the most commonly asked questions.
The typical management fee for managed transportation providers varies by engagement level and managed transportation pricing model. Pricing varies by engagement level, with per-shipment fee, percentage of freight spend, fixed ACV, gain-share, and hybrid models all common in the industry.
The payback period for managed transportation investments is typically faster than many other technology investments. Shippers typically see invoice savings within the first few months. Full payback for a TMS or managed transportation engagement is typically realized within 6 to 12 months.
Managed transportation contracts can include "hidden costs" like implementation fees for TMS, technology licensing fees, administrative fees for any manual tasks, and contractual tiering for volume spikes in freight. But a professional managed transportation provider will be upfront about all of their fees.
The decision between charging a percentage of spend versus a fixed ACV depends on the provider's willingness to take on risk and ability to manage market fluctuations. Percentage of spend is easy to explain to shippers and adjusts naturally as the company grows or transportation costs change.
Managed transportation solutions allow shippers to maintain efficient freight fulfillment even in difficult markets and geographic regions. At Loadsmart, we provide a full suite of engagement levels for our customers, including autonomous managed transportation. Transform your transportation network into a modern, cost-efficient operation with our advanced TMS and skilled experts.
Schedule a free Loadsmart Transportation Savings Assessment to see what pricing model and engagement level fits your network best.