Life doesn’t always go according to plan. And neither do your freight contracts.
For decades, the annual freight RFP has been the juggernaut of transportation planning. And yet it’s no secret that the long and painful annual bid rarely works out as planned. Within six months, approximately 50% of all negotiated rates no longer apply.
Think back to last fall—to your bid for the 2020 season. Your team scoping your shipping volume and freight needs for the year, working through pricing and forecasting models, defining the RFP process itself, vetting hundreds of carrier applications, selecting freight partners.
Did those partners come through for you in 2020?
Was the time and cost to administer the RFP worth it?
2020 highlighted the fundamental flaws of the freight RFP—that it attempts to assert control and predictability in an unpredictable freight market.
“I’m so done with bids,” one of our customers said the other day. “They suck the life out of my team.” This is what we’re hearing from many shippers.
As we wrap up the most volatile year in recent freight history, managing uncertainty and doing things differently are top of mind for many transportation teams. Large and midsize shippers are looking for alternatives to the freight RFP, and companies like Convoy are delivering through new programs like Guaranteed Primary, a new approach to sourcing primary freight that we launched in September.
The bad news: Even though many shippers want to ditch the traditional RFP process, they can’t do it altogether. Not overnight. It’s challenging to walk away from legacy systems and processes, and to win over internal stakeholders who are comfortable with the way things have always been done.
But as the saying goes, if you keep doing the same thing, you can’t expect a different outcome. And if 2020 has offered us anything, it’s permission to experiment and reassess.
The good news: You can start to rewrite the rules of contract freight using tools you already have in your RFP toolbox.
- Use this data checklist for for better budgeting and planning in 2021
- Test new alternatives to the traditional freight RFP
- Build trusted relationships with your strongest freight providers
The reality is, some part of your network will always be volatile, but the key is managing that uncertainty with the right mix of tools, providers, and insights.
Use this data checklist for better budgeting and planning in 2021
91% of executives say 2021 forecasting is going to look a lot different. Fortunately, you have the data and insights already in your toolbox to help you budget and plan for whatever comes your way. It’s just a matter of knowing what they all are. This data checklist can help.
Starting to track this data today will give you more supply chain visibility and a more resilient supply chain strategy for the future. Without accurate data and freight partners that can provide insights into the market, you won’t be empowered to make the decisions that improve your operating efficiency and drive down transportation costs.
To give you an example of how this works, Convoy collects more than 1,000 data points on every shipment. We do this through our GPS-enabled mobile app that drivers use when hauling for Convoy. It collects data along every step of every shipment. These network insights are delivered back to our shippers through detailed reports, online dashboards, and monthly business reviews. We also provide industry data based on aggregates across our nationwide network to establish baselines that help you understand your performance relative to other shippers.
With ongoing access to this data, your team will also be able to more quickly respond to changes in the market. That agility will better inform your transportation strategy, especially if you, like many other shippers, move away from the 12-month contract and tap into other tools in your toolbox.
Test new alternatives to the traditional freight RFP
Annual bids work best on lanes that see stable volume, when there’s confidence in the forecast. But as we’ve seen over the past several months, volumes—and lanes—are increasingly dynamic.
It’s time to think differently and be more strategic about the volatile and transactional freight in your network. Test new alternatives to the traditional freight RFP that address today’s volatility and give you confidence that you have the right tools in your toolbox.
Many of the innovative new freight programs are being offered by more recent entrants in the freight market, like digital freight networks.
These programs can be particularly effective for your inconsistent and low-volume lanes, since these pose a particular challenge: for shippers, they often require the highest overhead cost to service, and for carriers, the lack of volume commitment makes it challenging to provide consistent capacity.
One of these innovative new programs is Guaranteed Primary, which shippers are using to get 100% tender acceptance at a low fixed margin without the annual contract commitment. Here’s how it worked for a global auto manufacturer:
Aside from programs like Guaranteed Primary, we’re seeing more and more shippers also running more frequent mini bids, which, though they do come with their challenges, offer shippers the chance to try new providers to see if they’d be interested in pursuing a more long-term relationship.
Your freight provider should always be looking for more creative capacity solutions on your behalf, like where there’s opportunity to convert spot freight to contracted freight. You could also reallocate volume from one provider to another to get more strategic coverage and balance your network.
If now isn’t the right time to try these new approaches and you decide to stick with the traditional contract, make it a priority to supercharge your routing guide. Because the reality is, rejected tenders are going to pile up, if they aren’t already. And the best TMS integrations will act as your tender rejection safety net, giving you access to instant capacity, real-time dynamic pricing, and guaranteed rates when you need coverage the most.
Build trusted relationships with your strongest freight providers
There’s a common misconception that having a large pool of carriers reduces the risk of supply chain disruption. The reality is that managing a large pool of carriers is often detrimental to the business.
First, it’s expensive to manage many carriers, which drives up overall transportation spend. Shippers know their costs increase here, but they’re often okay with it because they think the cost savings are worth it. Specifically, they assume that pitting multiple carriers against each other on a lane will drive down rates. The opposite is often the case.
What really happens is that shippers don’t give their carriers enough volume to build supply density in order to drive any real pricing advantage. Supply density on a lane is critical to sourcing trucks cost-effectively. Without enough volume, carriers can’t perform well in this scenario. In fact, they can sometimes end up bidding on the same drivers, which increases cost to the shipper.
Think depth, not breadth. Build trusted relationships with your strongest freight providers and commit a healthy volume to them. This will enable them to source the best capacity on your lanes at below-market rates.
We’re seeing this trend pick up among transportation teams, with some cutting their networks by as much as half over the last year.
Which providers are the strongest? Ask yourself the following questions:
- Are they committed to innovating with you to solve your challenges? Have they put any investment behind that commitment?
- Do they challenge the way you’re doing things today and provide potential solutions, or do they simply accept the way things have always been done?
- Are they investing in technology to lower their costs over time?
- Do they offer transparency into their truck costs and margins to prove how well they buy transportation?
- Do they offer programs that create a win-win regardless of market conditions, saving you money when the market is soft and guaranteeing capacity when the market is tight?
- Do they offer you a complete look at your operational data and facility performance, along with market trends and freight economics research?
- Are they uniquely positioned to provide reliable, flexible capacity in any environment?
These questions have to do with innovation, transparency, trust, technology, resilience, partnership—all paramount in a reliable shipper-freight provider relationship that can weather any market.
If you answered no to any of these, it might be time to re-analyze your current relationships and consider new ones. And what’s a good way to do that? Well, you could try a mini bid—a tool already in your tool box.