The Problem with Ghost Lanes

The term “ghost lane” refers to routes contracted by shippers as a precautionary measure to cover potential demand (potential being the operative word here). When that demand fails to materialize, these routes devolve into ghost lanes — unused lanes that place a carrier’s valuable resources in limbo.

While some shippers consider ghost lanes a necessary evil, reserving freight capacity for lanes seeing zero volume frustrates carriers — and ultimately costs both parties by the next RFP cycle.

Here’s a brief look into common causes, negative effects and tips for erasing ghost lanes from your supply chain:

What Causes Ghost Lanes?

Ghost lanes generally spawn from shippers misjudging their needs. Most shippers aim to forecast their expected lane and volume requirements as accurately as possible, but shifts in the market (and the shippers’ business itself) can quickly render this forecast wildly off-base.

Imagine you have plans to expand your business to a facility located near new, untapped markets across the country. As you prepare for this seemingly imminent expansion, you opt to contract new lanes with carriers beforehand while rates are low (smart!). Unfortunately, you soon learn your facility’s opening will be delayed several months. Those contracted lanes now sit dormant and unused, and voilà! Ghost lanes are born.

Ghost lanes also arise due to purposefully aggressive forecasting. As a procurement strategy, this naturally sacrifices some cost-efficiency in exchange for protection from spikes in the spot market thanks to all potential lane needs being covered — though as referenced in the introduction, this will only wind up hurting shippers in the long run.

How Are Ghost Lanes Related to Higher Shipping Costs?

Whether part of a company’s coverage strategy or wholly unintentional, ghost lanes can quickly inflate the cost of shipping and muddy a company’s logistics if proper care isn’t taken to weed them out. Here’s how:

1. 1. The RFP process, contract and spot rates are all tied to resource management. Not only do excess lanes deplete budgets during the bidding stage by requiring more time and effort to collect bids, review carrier qualifications and negotiate contracts — they also drive up contract rates.

   When carriers see a sizable portion of their fleets going unused, they’re prone to raise rates in the following RFP cycle to compensate. Research suggests rates rise 1% per year for every 10% increase in ghost lanes. Keeping vehicles on standby for non-existent shipments also artificially reduces carrier capacity, which can further spike spot market prices at peak periods throughout the year.

2. Logistics is a relationship-heavy business. Ghost lanes put carrier networks in a state of perpetual uncertainty, which isn’t exactly conducive to a healthy long-term partnership. Carriers aim to maximize their available resources just like shippers do; don’t be surprised if a carrier raises prices from year to year in response to a repeated disregard for their need to do business.
3. Even if a ghost lane sees an occasional load, the rate of rejection is high. It’s true, not every ghost lane goes unused forever. However, when a ghost lane does yield load tenders, those loads are more likely to be rejected by carriers. The established contract prices also tend to be higher than the spot market prices at the time, causing shippers to overpay for the tendered loads on top of the fees incurred while managing the rejected freight.

How Can I Reduce Ghost Lanes Within My Network?

The nature of changing markets and the sheer size of the global logistics ecosystem means ghost lanes will probably never be fully eradicated. However, there are a few simple steps shippers can take to reduce the number of ghost lanes they’re responsible for managing:

• Regularly perform lane audits to identify underutilized lanes. Research suggests ghost lanes account for roughly 70% of procured lanes each year.
• Be cautious when establishing new lanes — only about 5% of new lanes actually materialize the same year they’re established.
• Utilize mini bids once demand becomes certain.
• Evaluate the tools and processes you’re using to gather data and forecast demand. Accurate data and reporting is foundational to avoiding unintentional ghost lanes.
• Develop a clear exit strategy for abandoning contracts that are no longer viable.
• Team up with a reliable logistics partner equipped to handle your shipping needs.

Got a ghost lane problem? With nearly two decades of logistics experience and a nationwide carrier network, connecting with a First Call expert is the best way to resolve your company’s immediate and long-term shipping needs.