Carrier Bidding Behavior in Truckload Spot Auctions

• Published date: 01 December 2018
• Date: 01 December 2018
• Author: Alex Scott
• DOI: http://doi.org/10.1111/jbl.12194

Carrier Bidding Behavior in Truckload Spot Auctions

Alex Scott

Northeastern University

When a shipper urgently needs truckload service, they often utilize the spot market. But despite its importance, little is known about this

market. I analyze a longitudinal data set of auctions for spot truckload service where I observe invitations for carriers to bid, whether a

bid is placed, and the bid price if one is placed, and augment this with information about the bidding carriers. Drawing upon auction theory,

I suggest that a carrier’s a priori characteristics (size, market specialization) explain the two primary decisions made in the auctions—whether to

bid and how much to bid. I find that brokers, who act as intermediaries between shippers and asset-based carriers, bid much more frequently

and higher than asset-based carriers. Price indexes show that broker bid prices follow similar patterns, but asset-based carrier prices do not. The

results suggest that an online marketplace linking shippers directly with the thousands of asset-based carriers could add considerable value to

the for-hire trucking industry, a development which appears to be happening.

Keywords: truckload spot market; business-to-business auctions; online marketplaces

INTRODUCTION

When a truckload shipper needs a load hauled from one location

to another, they have three potential sources of capacity: (1) use

privately owned trucks, if they have any; (2) request service from

a for-hire carrier with whom they have negotiated a long-term

contract price (Caplice and Sheffi2003); or (3) utilize the “spot”

market, in which they pay a for-hire carrier a price negotiated on

the spot for a single or small number of loads. While the first

two options account for most truckload shipments in the United

States, the spot market is sizable and used in some form by most

shippers (Caplice 2007). 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 2018)—the spot market

becomes a vital source of capacity (Scott et al. 2017).

But despite its importance, there has been little systematic

study of the truckload spot market. Prior research has established

a few facts. First, the spot market has traditionally been domi-

nated by brokers, who do not operate trucks but serve as a link

between the tens of thousands of shippers and asset-based carri-

ers (Sheffi1990; Lindsey et al. 2016). This could change, how-

ever, as electronic marketplaces compete with the traditional

broker model (see, e.g., Phillips 2018b). Second, there are sev-

eral methods used to find capacity in the spot market (Caplice

2007)—individually call a carrier, post a load on a “load board”

(p. 433), or hold an online auction where carriers compete for

the right to haul the load(s)—but interestingly no research on the

relative efficacy of each method. Third, spot prices are usually

much higher than prices established via annual procurement auc-

tions, but little is known about the determinants of those prices

(Scott 2015).

In this research, I analyze the behavior of different participants

in the spot market—carriers who operate trucks versus brokers

versus carriers who do both—in truckload spot auctions to

answer three research questions. First, do carriers with different

market specializations (Penrose 2009) behave differently in the

spot market? Second, do carriers of different sizes behave differ-

ently in the spot market? Third, given the private nature of

nearly all spot transactions, do prices from different carriers cor-

relate with one another over time?

I examine these questions using highly detailed data from spot

auctions conducted by a large national shipper to procure truck-

load service. In these auctions, the winner acquires the right to

haul a load from one point to another at their bid price. The data

set includes 90,844 distinct auctions, 437,851 bids, and

3,382,695 invitations in auctions held from 2012 to 2015. I aug-

ment these data with information scraped from the participating

carriers’and the U.S. Department of Transportation’s (DOT’s)

websites (Massimino 2016).

Ifind that brokers, who specialize in the spot market, bid

much more frequently and with higher prices on average than

other types of carriers. Size also affects bidding behavior, but

this effect is greatest for asset-based carriers, whose primary mar-

ket is long-term customers at static contract prices and not spot

markets. As indexes show, broker prices follow the same pattern,

with correlations of 90% or greater, while prices of asset-based

carriers do not follow the same pattern. This suggests that the

different types of carriers use different pricing strategies when

participating in the spot market. Accordingly, the shipper pays a

much lower price when an asset-based carrier wins the auction,

especially when the broker price indexes are high.

I contribute both theoretically and practically. The analysis pro-

vides unique insights into the United States for-hire truckload

(FHTL) industry. Brokers have historically been necessary because

individual truck drivers cannot actively offer their services when

on the road. But with the introduction of smartphones and fast cel-

lular networks, the barrier between the fundamental source of sup-

ply—a single driver with a truck and trailer—and a shipper is

falling. Accordingly, venture capitalists are investing heavily in

possibly disruptive technologies (Nicas and Stevens 2015; Phillips

2018b). My analysis shows that such a disruption could be worth

billions of dollars in the spot market and perhaps much more if the

entire FHTL market were affected.

Corresponding author:

Alex Scott, D’Amore-McKim School of Business, Supply Chain and

Information Management, Northeastern University, Hayden Hall,

360 Huntington Avenue, Boston, MA 02115, USA; E-mail:

f.scott@northeastern.edu

Journal of Business Logistics, 2018, 39(4): 267–281 doi: 10.1111/jbl.12194

© 2018 Council of Supply Chain Management Professionals