Managing Transportation Volatility in Today's Market
Are Annual Carrier RFP Events Dead? It depends.
Anyone anywhere close to transportation knows that the freight market (globally, all modes) has been rather unsettled (too gentle?) in the last 18-24 months.
The up and down relative to rates and capacity is enough to make one seasick.
While product price volatility and supply chain disruption get all the headlines, there is a growing debate in the Truckload (TL) shipping community about the future of the Request for Proposal (RFP).
On one side of the argument is the opinion that yearly RFPs are obsolete and should no longer be used.
On the flip side, there is the belief that RFPs have value, but that they should be executed differently and multiple times per year.
One thing that nearly everyone agrees upon is that the “traditional” method of conducting FTL RFPs is manual, time consuming, error-prone, and a drain on the resources of both shippers and carriers.
Driven by the limited number of carriers invited to a traditional RFP, the time taken to execute, and the one-year duration of a contract, the end result of most bids is a combination of paper rates, load rejections, and cost increases.
They just don’t work out as hoped.
“The annual carrier RFP event may not be dead yet, but the old way of securing rates and capacity is certainly going the way of the buggy whip.”
Both Timing and Process Matter
Let’s look at the question a little differently. It’s not just the timing, but the process. An annual RFP may be sufficient for a narrow band of shippers, but at a high level our POV is:
- Annual network-wide TL bids do not work anymore
The “decay” time of paper contracts has sped up significantly in the past few years.
- Mini-bids allow shippers to adjust to the market
Smaller, more frequent bid events keep the shipper in tune with market fluctuations in capacity and rates thus avoiding costly alternatives.
- The spot market is becoming more important for large shippers
Shipper clients were previously 95% contract, 5% spot market. Now we see around 70% contract, 30% spot (average over the past 18 months). Shippers need to know which path to follow.
- Current processes and systems are not nimble enough to support mini-bids
Shippers are trying to use solutions designed for annual events to do these bids, but the overhead and manual processes of integration make this difficult.
- The size of the TL carrier market
The sheer number of TL carriers make shippers unaware of suitable carriers that may have network synergies. Introducing shippers to reliable, low cost carriers (and vice versa) is a win-win.
- Beyond TL
While TL – and for many of our clients, multiple other modes – are really important, assistance with parcel rates procurement has lots of value. Even if just negotiating with an incumbent, the ability to understand the impact of proposed changes (scenario analysis) is highly valuable before a contract is signed.
“Smaller, more frequent bid events keep the shipper in tune with market fluctuations in capacity and rates thus avoiding costly alternatives.”
Modern Bid Events
What is needed is a technology-enabled, market sensitive, nimble approach to carrier relationships.
A new service offering from JBF does exactly that. We have partnered with a leader in the freight procurement space that checks the boxes on modern bid events. In summary, here's the approach.
- Planning and Scoping the Event
What are the lanes, modes, and carrier requirements we want to take to the market?
What personnel is required to manage the process and what is each party's role?
What is the Definition of Success - lower rates, capacity commitments, improved service, more diverse carrier base?
- Data Collection and Preparation
Having identified a subset of our freight, do we have an accurate representation of what we are asking from the carriers?
This includes lane volumes, handling specs, and origin/destination requirements.
- Create and Distribute the RFP
Within the Emerge technology platform, the event is created with all additional information relevant to carriers (seasonality, service expectations, certifications, and the like).
The tool will distribute to incumbents and relevant candidates for their timely response.
- Scenario Analysis and Award
Upon receipt of carrier bids, analysis is performed to optimize requirements such as percentage of loads to a certain carrier by volume, ownership or certification status, asset-based vs. broker, etc.
Sometimes a secondary bid is called for. Then awards are communicated, as well as notification to non-winners.
- Update the TMS with New Rates
Following analysis of various scenarios and award, rates are updated in the TMS per effective dates.
These should be monitored for accuracy in TMS operations.
Engaging Brings Value Shippers
The value to you, the shipper, by engaging this process.
- Immediate go to market plan for selected opportunity areas
- Minimal time investment by client team
- Utilization of leading bid management technology
- Development of a repeatable process for data extract and analysis for areas of opportunity
- Manage transportation spend to the fluctuations of the market
- A process that takes weeks instead of months to execute
The annual carrier RFP event may not be dead yet, but the old way of securing rates and capacity (manual, time-consuming, not compatible with market fluctuations) is certainly going the way of the buggy whip.
We look forward to helping you with your challenges when it comes to improving vital processes. It's what we do best!
Let’s Have a Conversation!
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Dennis Heppner is a Principal at JBF Consulting. Dennis’ expertise in transportation, logistics and supply chain operations, and third-party providers spans 25+ years. His experience is broad-based, spanning entire supply chains, including business process redesign, sourcing, distribution network design, transportation management, distribution operations, outsourcing selection, and business strategy for major manufacturers, distributors, retailers including eCommerce, and service organizations.
About JBF Consulting
Since 2003, we’ve been helping shippers of all sizes and across many industries select, implement and squeeze as much value as possible out of their logistics systems. We speak your language — not consultant-speak – and we get to know you. Our leadership team has over 100+ years of logistics and TMS implementation experience. Because we operate in a niche — we’re not all things to all people — our team members have a very specialized skill set: logistics operations experience + transportation technology + communication and problem-solving skills + a bunch of other cool stuff.