Freight transport value proposition that can actually boost bargaining power

The ability to effectively influence the other side in a freight negotiation to secure a better bargain, a.k.a. a business’s bargaining power, depends on many factors – customer structure, costs, suppliers, competition, industry concentration, strategic partnerships and the current set of economic conditions. It is also an insightful measure of the competitiveness of an industry. New technologies have largely been promoted as a strategy to optimize, streamline and automate the internal processes of a freight transport and logistics business to the end that costs are reduced. But is it the only way to sharpen the competitive advantage of a logistics business? From better capacity utilization which when scaled-up could leverage supply vs existing demand, through enhanced reliability and extended development of service which improves the overall supply-chain performance and resilience, to higher agility and faster adaptability to market dynamics, a tool is only as good as the skillfulness of the hands that wield it.

Buyer’s perspective. Before digging deeper into the inner workings of the industry that forge its competitive edge, let’s take a look from the perspective of the buyers of freight transportation and logistics services. The way customers perceive the value proposition of a transport business may differ significantly and often come as a shock to business owners and sales teams alike. A lot of market segments will always push for the lowest prices but long-term and large-scale buyers might value much more the reliability of service, the lower risk related to the logistics suppliers in their portfolio or the resilience that the offered transport solution adds to the system as well as the lower costs incurred in the carrier daily management. Getting to know your customers and the customers that you want to reach always pays.

Indeed, reliability of service emerges as the most crucial factor that makes a business offer preferred over others with an overwhelming 2/3rds  of our expert respondents confirming it as their leading selection reason when buying freight services. Reliability is valued much higher than any loud marketing or tech perks, as nothing is more exhausting than having to search for transport alternatives in an emergency after having spent hours over hours of evaluating and selecting logistics suppliers that fail to deliver on time or as per requirements. Put in perspective, less than 1/5th of the buyers will go for the lowest price, as their merchandize is more sensitive to cost rather than harm or delay.

Reliability of service. The true challenge to businesses, which strive to improve their competitive advantage in a heavily competitive freight transportation market, is how to improve the reliability of their service in such a way as to become the preferred suppliers by their customers. Approaches need to dig deeply in the core organization and operations of the company and must cover both physical and human resources as well as internal processes and daily communication with customers.

Now, what makes a freight transportation service truly reliable in the eyes of the buyer? Certainly well maintained fleet and warehousing facilities together with a developed network and trained truck and FLT drivers is a must that is considered the baseline in the industry. However, to set your proposition apart from the competition, your business would need to take at least a few leaps further from that baseline. More than half of the professional buyers we asked responded that improved and high-precision shipment tracking and cargo monitoring packed with predictive shipping times, delays and ETAs that they can trust are the stocks in high demand from today’s freight transport and logistics industry.

The second most import characteristic receiving 43%of the votes, would lie in the way a freight transport and logistics business communicates with its customers during and in-between shipment orders. Anticipation techniques, timely updates, proactive issue resolution and key performance metrics all add up for that much needed premium customer service that really enhances a buyer’s contingency plans.

Notice how prediction, anticipation, proactive communication and metrics are closely linked with supply-chain planning? Planning that can actually be trusted. And trust is key when reliability is at stake.

Development of service. On the other hand, markets, customer needs and competitive offers are always shifting and twirling about, pushing for new segments or efficiencies. Staying frozen and unchanging might as well mean falling behind competition. As contradictory as it may seem, strengthening and maintaining the reliability of freight transportation service comes hand in hand with the thirst to develop it further. Dimensions and opportunities to do so are certainly vast. From adding packaging and labeling to the core service, through providing same-day or express delivery options and innovative last mile solutions by autonomous vehicles, connecting vehicles in the supply-chain network by IoT-enabled sensors, polishing customer service with customized solutions, 24/7 support and proactive issue resolution, to automating order processing, PODs, invoicing, etc. and reducing both lead times and empty backhauls. Efficiency is no doubt the holy grail of operations with 37% of our expert respondents picking it over value-added services, creative features, innovations, enhancements and smart connected technologies but service is no longer just driving the cheapest from A to B.

Seller’s perspective. Sitting at the other end of the negotiation are the freight transport and logistics sellers who have a dilemma on their hands as well. Highly dynamic and often demanding quick decisions, sales often mean to balance between customer requirements and own business goals. Between short-term results and longer-term relations. Building loyalty with a large volume customer may be worth the investment of time, effort and some sacrifice of current results while spot sales are always about the moment now against competitors’ pressure. On the other hand, becoming dependent on a single ordering customer is likely to increase both risk and pressure on prices pushing for regular productivity discounts.

50% of the sellers we asked confirmed that the business volume of a customer exerts the biggest impact on negotiations. Volume and the average order value would let sellers estimate the expected account revenue and margins, which would ultimately affect their dynamic freight rate pricing decisions. Pressure from competitors is also a force to be reckoned with and 26% of respondents put it first. The dynamics of competition, the clash of competitive advantages and the exposure of a business to the forces on the market shape the shifting dominance in bargaining.

Forces. Getting the upper hand in any deal depends on a complex set of factors such as the alternatives available to sellers and buyers as well as how patient each of them can be with the costs incurred in daily operations. Pressure from market demand on one side, from established competitors one the other and from suppliers and the operational costs on the third all set in the current regulatory and economic conditions leave a tiny window of opportunity where sellers and buyers can meet and close the deal. A fragile equilibrium challenged constantly by new competitors and technology advancements sometimes causing massive underwater shifts in industry concentration.

Economic conditions. How wide is that window where forces balance each other, though? The European road freight rate index saw in Q2 2023 and for the first time in years, spot prices dropping below contract rates, which signals a high compression of the stretch of land where sales operate.


SPOT: Short term demand for road freight, which shapes the spot market, plunged down after a full year of wage growth (2%-5,3%) lagging significantly behind inflation rate (6,53%-11%). Europeans are generally getting poorer with negative real wage growth and reduced purchasing power:

Capacities of road freight providers grew in the meantime, causing greater competition pressure on the spot market as well.

CONTRACT: Meanwhile, the European energy price index saw a cost reduction of 11,5% since November last year, reinforced by 28% growth in EU50 stock index since September last year and dividends growth significantly surpassing inflation rate. A confluence of factors that instilled a positive industrial outlook. Contract market is also traditionally considered a buyer ’s market and thus drew in more shippers with the freshly introduced flexible time frames of contracts. Both positive expectations and a shift to contracts acting together stemmed greater demand for capacities on the contract market. Structural lag in falling costs also helped the contract prices keep their positions.


COST BASE: Nevertheless, both spot and contract prices, remaining 12%-15% higher than the pre-war equilibrium despite their drops, reflect the much higher cost base of freight transport and logistics providers. Stored fuel capacity and EU regulatory efforts to contain diesel prices worked for the first half of 2023 but the voluntary reduction of petrol output by OPEC is starting to cancel them out:

Job vacancy rate among truck drivers eased down to 7% in 2023 but is expected to rise back to 11% next year. Looking into the driver population, less than 6% are under 25 years old and more than a third of those over 55 are expected to retire in the next 5 to 10 years. That translates into 1.2 Mio truck driver vacancies.

Trends. How has the combined pressure from that higher cost base, diminished European purchasing power and steady growth of competition influenced the industry? Most immediate effect was a 80% rise in bankruptcy declarations as less efficient, worse positioned or less resilient providers of freight transport and logistics services were forced out of the market:

Others sought safety in consolidations acting towards greater concentration of freight transport industry. Consolidations are deemed in the industry as allowing better control of rising costs (31% of respondents) as well as reducing competition pressure (31% of respondents) rather than seeking to diversify or expand the range of services (18% of respondents). So it is generally seen by the industry as a defensive survival strategy and venture capital funds took the opportunity to further develop their portfolios with freight transport and logistics companies.

The overall projection is rather grim with an estimate of a meagre 1.1% growth in road freight market size:

Strategies. Alternative defensive strategies that aim at improving the competitive edge of a business will seek to increase the difference from the competition in an attempt to ease the pressure. Either by enhancing service features or improving the quality of service to price ratio or by carving out a niche on a specific market segment where a certain characteristic of the service is all that matters to customers. The latter can transform any freight transport and logistics business into the go-to provider for specialized needs. Indeed 19% of experts we asked agree with effectiveness of such strategies, as they tend to build stronger customer bond.

Classical all-out offensive strategy, on the other hand, would suggest aggressive pricing aimed at quickly covering more ground and pushing through and ahead. It is expected to bear quick fruits in certain periods and is backed by 21% of the votes but nevertheless not considered sustainable in the long run.

Still, none of the above will assert any long-lasting dominance on the freight transport and logistics market if deliveries are not consistently on time, their use require more effort by the buyers or bring about extensive risks of disruptions in the supply chain. Hence an overwhelming 43% of the freight transport and logistics professionals would prefer to invest in service reliability and evolution instead.

In that line of speaking, machine learning can be the transformative catalyst that links the enhanced reliability of service with the expansion of value-added offerings. Predictive analytics allowing businesses to anticipate crucial events, bottlenecks, hazards or customer needs and enabling proactive actions and issue resolutions can drive them to success. The ones that find their way to excel in proactive service will strengthen their bargaining power as the strategic brilliance is seen the fusion of operational excellence and customer relationships.

Value proposition. Merging service reliability and innovation, distinctiveness and commitment to customer-centered approach that surpasses buyers’ expectations can craft the irresistible value proposition that freight transport and logistics businesses need to survive the rising pressure and thrive in the window of opportunity.