Almost all transportation managers will agree that a well-executed freight request for proposal is time-consuming and analytically challenging. With everyone’s resources stretched to the max, freight tenders are often delayed, or not completed at all. So when you do bite the bullet and invest in an RFP project, it pays to make sure you’re getting the best result possible.
Based on our experience with conducting numerous carrier sourcing engagements, we have discovered five key tactics that will ensure your next carrier RFP generates the best results possible.
1. Sell your freight
It’s often difficult for new carriers to compete with incumbents. Your current carrier understands your freight well, and what it costs it to move it. Without this information, new carriers often will include a “risk premium” in their price to ensure they don’t end up with “bad freight.”
Your objective is to reduce the risk premium by providing as much information as possible about your requirements, your operations and the products you’re shipping. In essence, you’re “selling” your freight to the carriers.
Of course, this information needs to be accurate and complete. Misleading carriers only ends up in bad outcomes for everyone involved.
Give your carriers the right amount of time to respond. Without enough time to analyze your requirements and consider the fit with their network, you’ll get a response — but it won’t be their best response.
We recommend three to four weeks depending on the time of year. The reality is that your bid-package will stay on someone’s desk for the first week. Pricing will likely have it in their queue for another week, so you won’t really get any mind-share until week three or four.
3. Standardize your accessorial program.
The variety and complexity of accessorial programs make evaluating bid responses complex, not to mention the difficulty you will have auditing the invoices when they come. A common way to address this is to create a standardized accessorial program with one uniform set of charges that will apply to all carriers. If you develop and present a fair program to carriers, there may be no adjustment needed in their base rates, and you will have greatly simplified your evaluation and auditing processes.
4. Fully analyze your rate proposals.
Because of the difficultly in aggregating and analyzing multiple carrier proposals, many shippers will just look at the key lanes and weight breaks that generate the bulk of their business. The problem is that carriers know this. As a result, a common strategy is to offer aggressive discounts on major lanes, while keeping rates to less common destinations, or in less frequently used weight breaks higher.
Depending on your shipping profile, you may end up paying a lot more, even though you have lowered rates in your major lanes.
5. Benchmark your results.
The funny thing about RFPs is that six months after they’ve been completed it’s hard to know if you actually saved any money. Freight patterns change from period to period, so just looking at the expense line in your P&L can be very misleading. If shipping volumes go up, so will your freight costs — which doesn’t mean you didn’t save money (even though you spent more).
Further, volumes could stay the same, but shipping mix may change. Smaller orders to destinations farther away will increase costs on a dollar-pound basis. Again, it’s possible you saved money, even though your freight spend is increasing.
It’s also possible your new carrier that offered great rates also is assessing every accessorial charge possible, while your old carrier often let these slide.
Scott Irvine is vice president of business development for Toronto-based logistics consulting firm Nulogx. Contact him at email@example.com. This article is based on discussions with numerous transportation managers and consultants.