Transportation Operations LINCS Practice Exam

Having contracts with over 20 less-than-truckload carriers for inbound freight is an example of which risk reduction strategy?

1. Hedging

2. Law of Large Numbers

3. Competitive bidding

4. Relationship management

The correct answer is: Hedging

The correct answer centers on the concept of hedging, which involves implementing strategies to mitigate risk in uncertain situations. By engaging in contracts with more than 20 less-than-truckload carriers for inbound freight, a company diversifies its transportation options. This diversity spreads the risk associated with relying on a single carrier or a limited number of carriers. If one carrier faces challenges—such as capacity issues, service disruptions, or rate increases—the company is not entirely dependent on that carrier and can switch to one of the other contracted carriers. This practice minimizes the potential impact of disruptions and provides a buffer against fluctuations in service quality or pricing. The other strategies, although they carry their own importance, do not encapsulate the same focus on risk mitigation through diversification. For example, the law of large numbers pertains to statistical risk management rather than carrier diversification. Competitive bidding is related to selecting providers based on offers but does not specifically address variations in risk exposure. Similarly, relationship management is more about cultivating partnerships than strategically diversifying carrier options to manage risks effectively.