PhD Candidate Angela Acocella in conversation with MIT FreightLab Co-Director David Correll about her recently published paper, “Elephants or Goldfish: Carrier Reciprocity in Dynamic Freight Markets“.
Who are “elephants” and who are “goldfish” in your research?
We’re studying long-term interactions between firms, so elephants are those that have long memories; they remember their history. In this case, carriers that behave like elephants demonstrate better performance today for their shippers that have historically demonstrated competitive performance or pricing.
On the other hand, carriers that behave more like goldfish have short memories, they behave more myopically. The relationship may still be strong, but they appear to respond more to their shippers’ current performance or prices.
What does your research tell shippers about working with carriers?
While this research does not suggest that the relationships between shippers and their carriers are unimportant, it does imply that even if a strong relationship has been built, when markets become very tight, shippers need to maintain consistent volumes, reduce carrier detention particularly at destination facilities, and ensure contract prices are competitive with going market rates to ensure high primary acceptance.
The other side of that question – what do your results imply about carriers?
That’s a really great question – and one I’d like to study formally in a follow-on piece to this. Do shippers behave more like elephants (have long memories) or goldfish (with short memories)? In other words, should carriers that maintain high on-time pickup and delivery and high freight acceptance for shippers in a tight market to receive more competitive prices in a soft market?
How do you measure reciprocity in your work?
First, we have to define what shippers and carriers consider “good” performance from the other; for example, carriers with high acceptance rates and shippers with consistent tendering patterns, and prices that are competitive with current market rates.
Then, reciprocity is measured by whether good performance from one, when freight markets are in their favor, is responded to in kind with good performance by the other when the market has inevitably shifted to favor them.
You were very deliberate in your paper about how you identified when power shifted between shippers and carriers . Could you describe your method for identifying when a market shifts from soft to tight?
It was important to rigorously define market periods to isolate the behaviors we were studying. I use average primary carrier acceptance ratios across 70 shippers as a proxy for “the market” because it demonstrates real-time carrier decisions. Every week in the timeframe is a candidate market change point and using regression modeling techniques, I show which week has the largest, statistically significant difference between the underlying structure of the market – measured by average value and variations in acceptance ratio – leading up to that week and following that week.
What is next in your research stream?
The biggest takeaway is shippers need to keep prices competitive with the current market. The question becomes how should they. The annual TL RFP results in fixed-price contracts without price flexibility. Shippers seek price stability to budget around, but the reality is that shippers face load rejections and cost escalations when rates become stale. The next stage of my research is about ways shippers can keep rates current by addressing the questions: How can shippers effectively use mini-bids? And how should shippers design index-based contracts?