Transportation bids, often referred to as requests for proposal (RFP) or requests for quotation (RFQ), are formatted asks from shippers to transportation companies requesting prices and capacity to transport their goods. The overall process can be both time-consuming and hard to manage. It’s something that 3rd Party Logistics companies do all the time across a wide array of clients, both existing and potential. A 3PL can really help smaller and medium sized shippers navigate the process more effectively than they can by themselves.
In the current marketplace, available truck capacity is still high and Loads-to-Truck ratios are still low. That makes it time to strongly consider executing a bid on your freight. Commercial road transport functions closely with supply and demand relationships. The truckload market can be very sensitive to disruptions and external influences such as import volumes, seasonal manufacturing (lawn mower season as an example), agricultural harvests (produce season) and other similar net market fluctuations. However, the biggest single influence is how many loads are available versus how many trucks are available to move them. The more balanced this ratio, the less volatility in rates. If the ratio swings in one direction or the other rates will swing too. If there are too many trucks in a market, rates go down, if there are too few trucks in a market they go up.
The first consideration for your bid is picking the right time to bid. The first quarter usually starts out soft for carriers. Truck capacity typically tightens in the spring. The majority of transport bids come in the fall. The best time to bid may be when everyone else isn’t. Picking the right time to bid can help the results and shorten the timeframe. Pricing departments get overloaded in the fall bid cycle and bog down. Since the first quarters are soft and slow, I think that’s the great time for a bid to go in.
The next consideration is selecting the group of carriers with whom you want to bid. Global bids fanning out to every Tom, Dick and Harry carrier in the marketplace is not an effective way to run your bid process. It is too cumbersome to manage and difficult to parse through the responses, and the results will not typically hold up well in the long run. Select your potential provider base carefully. While you want to maintain competitiveness, you also need quality suppliers or in the end price won’t really matter. If you know your volumes with its peaks and valleys, you should be able to target carriers who have the size (big and not so big) necessary to support your needs. Too big or too small may work against you. Use a “Goldilocks approach” and find carriers who are “just right” in size for your operations. The use of both asset and non-asset providers can bring some elasticity to your strategy to help address demand variability within a lane. Select a manageable number of carriers at the beginning of the process who can provide enough of a competitive posture to make the bid work. Target carriers who you know can handle your demand levels throughout the year. While considering carrier quality, you must also consider the financial strength of the carriers. If a carrier is not financially strong, you could find out the hard way through poor service, high than normal claims, and lack of transparency. A cheap carrier may fail after a short period of time and then you are left holding the bag. Consider adding a 3PL provider with no assets into the mix by doing a “core carrier plus” program. In this configuration, the 3PL acts as your safety valve for capacity needs and a baseline for costs. This way if you pick the right 3PL you can avoid the spot market altogether and save yourself considerable cost.
A third requirement is to provide accurate information in the bid. As they say, “garbage in garbage out”. Lanes with the least variable demand patterns and most predictable tenders experience better performance than more volatile, less stable lanes. Inconsistent demand patterns tend to cause more failures and require spot rates to move the freight. When planning a bid, segment your lanes by their predictability of demand. Consider the best scenario to be flexible enough with variable demand lanes so you can keep away from using the spot market. Lanes with the greatest variability should be planned for 3PL routings versus putting them in the RFP/RFQ. This way you don’t receive rates with added costs built-in that is peanut-buttered across all your lanes. Shippers who consistently do bids are more prone to have carriers honor their rates and commitments for the whole term of the agreement because it allows the carrier to better plan their operations and build an effectively functioning network using your freight. In a tight market, securing capacity can be a challenge and taking only a cost-based approach to setting up your routes won’t work well over time. After you decide on the candidates to send your bid to, you need to make sure that you provide them with all pertinent facts surrounding the bid. Make sure your formats are clean and easy to read and digest, and that you provide a legitimate conduit for questions to be answered.
The more accurate and detailed the bid the better your relationship will go with the provider(s) you select. Be upfront about any additional services required. If you omit them, the quality of your bid will suffer. Using a K.I.S.S. approach is important. Especially if you are a smaller sized shipper. Most of the selection process should take place when you are screening carriers during the front end. Make sure you pick carriers who fully understand your needs and know the markets you play in.
Once again, a 3PL, like Riverside Logistics, that does this for a living, can be a real asset in managing the process and the results. We offer tailored, market-driven solutions that help you navigate the current transportation landscape and enhance your annual trucking RFP/RFQ process. Give me a call at 804-474-7000 and I’ll be happy to assist you.
