Follow us on Twitter!
Blog Header Logo
DG&A's Transportation Consulting Blog
Posted by on in Freight Cost Savings
  • Font size: Larger Smaller
  • Hits: 5656
  • 0 Comments
  • Print

As Freight Rates Go Up, an RFP is still one of the Best Ways to Control Freight Costs

b2ap3_thumbnail_Request-for-Proposal_20150613-142653_1.png

This year, all signs point to rising freight rates. With driver shortages across North America, driver wages are on the rise. On an almost daily basis, there are reports of trucking companies offering signing bonuses and pay for performance (productivity) packages to attract more drivers (at a higher cost) to their firms. Capacity shortages, government regulations and increases in fleet costs are all driving upward pressure on costs. In addition, economic growth is increasing the demand for transportation services as freight carrier consolidation, particularly in Canada, reduces the range of carrier choices.  New pricing methodologies (e.g. Dimensional Pricing) will also serve to push up freight rates, particularly for low density LTL shipments.

Shippers have been using Freight RFPs or Freight Bids for years in an attempt to keep freight rates under control. The question is whether FRPs still work effectively in a climate of rising freight rates? As a company that has been conducting freight bids for over ten years, the answer is yes, but they take more thought, more planning and more work than is the past. Here are a few tips to ensure your company achieves the best value for its transportation dollars.

1. Leverage your volumes

Your company’s volume of freight, in the traffic lanes where your vendors and customers are located, is the deck of cards your company brings to the table. One of the keys to success is to leverage these volumes as effectively as possible. To do so, it is helpful to consolidate (for purposes of rate negotiations) the freight volumes you have across multiple plants, divisions, sister companies and/or even competitors, if possible. Larger freight volumes give you a bigger bargaining stick.

2. Know your freight

It is critically important to know as much as possible about your company’s freight and shipping characteristics. This includes items such as commodity descriptions, densities, packaging, loading and loading characteristics, paperwork, and delivery times (e.g. pre 8:00 AM). This can help you in several ways. First “knowledge is power” and this knowledge enables you to understand what makes your freight attractive or unattractive to carriers. It ensures that you don’t get taken advantage of by the carriers and pay rates that are inconsistent with the freight that your company moves.

3. Consolidate your freight wherever possible

Some companies have small parcel or LTL freight. This doesn’t necessarily mean you have to pay small parcel or LTL rates. Talk to your customers and vendors. Seek out ways to consolidate small parcel shipments into LTL orders or ship quarter, half or full loads of LTL freight. Can daily LTL orders be moved weekly or bi-weekly? Look at the departure and arrival times of your freight to find situations where freight costs can be reduced by shipping on specific service days.

4. Look at modal options

Would your customers accept a delivery a few days later if you switched some truckload over the road shipments to intermodal service? Would it make sense to combine LTL shipments on a container and send them to specific warehouse locations where they can then be delivered by a local LTL or cartage company?

5. Cast a wide net

As you prepare your RFP, look beyond your current list of carriers and seek out other asset or non- asset based companies that can do the job. Are there some irregular route LTL carriers that can move multi pallet orders direct from origin to destination? Would you benefit from working with some logistics service providers that can mix and match a range of carriers to meet your company’s needs? Do some of these 3PLs have access to small local carriers that excel in certain hard to service regions?

6. Understand your carriers’ needs

Despite what some shippers and carriers think, successful RFPs evolve from forming true partnerships rather than adversarial relationships. Rather than rush out to the market, take the time to understand the needs and attributes of your carriers. Find out where they need specific head haul and back haul business. Understand how your business fits within their transportation networks.

7. Consolidate carriers

As we work with our various clients, we see situations where shippers are using dozens and in some cases, hundreds of carriers. This often results in sub-optimized freight allocations and sub-optimized freight pricing. Look for geographic areas where you can consolidate volumes (and carriers) to increase leverage.

8. Negotiate everything over multiple rounds

Negotiate freight rates, fuel and accessorial charges. Everything is negotiable. Don’t jump at the first set of rates you receive, no matter how attractive they may be. Look for opportunities to consolidate your volumes even further to secure better pricing. At the same time, do your due diligence to make sure the carriers have the equipment, drivers and information systems to meet your requirements. A single-minded focus on pricing is not a recipe for success.

9. Stay flexible

In your RFP, make it clear that your company is not making any volume commitments. State this up front. This is not to say that you won’t consolidate your volumes with particular carriers at the RFP comes to conclusion. You will. It just means that this doesn’t have to be in writing.

As the negotiation progress, the carriers will seek to impose volume guarantees, particularly if you wish to place some or all of your business under contract. If you have an off year, a volume commitment allows the carrier to impose rate increases. By making your company’s position clear up front and during the process, this will protect your company from unpleasant surprises down the road. It also makes it easier to switch carriers if a particular firm is not performing up to expectations.

10. Sign multi-year agreements with fair but modest rate increases

If you want to establish true partnerships with your carriers, you need to make some commitments. A multi-year agreement with reasonable rate escalation clauses tied to increases in GDP is a good way to do this. With a multi-year agreement, the carrier is likely to be more dedicated to your business, to continue to make their assets available to your company and provide better service.

Sticking to this set of principles will allow shippers to negotiate competitive freight rates in a year of rising carrier costs. Has your company conducted a Freight RFP this year? What did you learn that would helpful to shippers and carriers? Please let us know by providing a comment below.

 

To stay up to date on Best Practices in Freight Management, please join our group (https://www.linkedin.com/groups?gid=4357309&mostPopular=&trk=tyah&trkInfo=tarId%3A1409587506329%2Ctas%3Afreight%20management%20best%2Cidx%3A1-1-1) on LinkedIn. To follow me on Twitter, go to @DanGoodwill. If you need help with your Freight RFP contact dan@dantranscon.com.

0

Comments

  • No comments made yet. Be the first to submit a comment

Leave your comment

Guest Friday, 29 March 2024

Most Recent Posts

Search


Tag Cloud

business start-up energy efficiency Wal-Mart CP Rail shipping wine LTL Entrepreneur Truckload Uber Freight Consulting Anti-Vax Retail transportation 3PLTL peak season broker security YRCW Geopolitics Leadership Justice ProMiles Training New Hires routing guide Freight transportation newspaper capacity shortages US Economy TransForce Life Lessons Transportation service Politics customer engagement autonomous vehicles financial management freight costs computer protection Loblaw buying trucking companies 2013 Economic Forecast Search engine optimization Packaging Omni Channel Digitization FMS Infrastructure Swift Climate Change Dedicated Contract Carriage freight rate increases FuelQuest David Tuttle asset management MPG laptop Canadian Transportation & Logistics Broker US Manufacturing Scott Monty Management Inbound Transportation BNSF Covid-19 trade Finance and Transportation Dan Goodwill Transplace $75000 bond Horizontal Supply Chain Collaboration Werner TMP Worldwide 360ideaspace dark stores US Auto Sales CN Rail Trump CITA Shipper Pulse Survey Outsourcing Sales derailments Sales Strategy Canada-U.S. trade agreement YRC transportation audit business security dynamic pricing Freight Rates USMCA Schneider Logistics Emergent Strategy freight agreements consumer centric pipelines Training Digital Freight Networks Freight Shuttle System shipper-carrier roundtable ShipMax Canadian freight market shipping Rail Celadon CSA freight cost savings selling trucking companies cyber security Warehousing FCA coaching freight audit Otto Reshoring CSX TMS Value Proposition home delibery Rate per Mile Carriers Montreal Canadiens Business Development Education Masters in Logistics computer natural disasters economic outlook Business Strategy technology economic forecasts for 2012 US Election freight payment freight audit Habs Job satisfaction Cleveland Cavaliers e-commerce computer security Muhammad Ali KCS freight transportation conference truck driver Canada Donald Trump rail safety cheap oil 3PL Toronto Coronavirus Driver Shortage driver Global Transportation Hub Software Advice JB Hunt freight bid Crisis management Dedicated Trucking NAFTA tanker cars carrier conference trucking company acquisitions FCPC Rotman School of Business China 2014 freight forecast Keystone Pipeline APL automation 2014 freight volumes Canada's global strategy Derek Singleton Load broker solutions provider Spanx University of Tennessee Global experience Twitter shipper-carrier contracts President Obama US Housing Market Electric Vehicles NCC Tariffs Adrian Gonzalez IANA Comey drones NMFC Failure autos Social Media Impeachment CSA scores Crude Oil by Rail Toronto Maple Leafs Distribution Yield Improvement Doug Nix future of freight industry network optimization FMCSA Success failure entrepreneur Transloading professional drivers Tracy Matura driver shortages Leafs Sales Management Transcom Fleet Leasing last mile delivery digital freight matching hiring process Trucking home delivery UP NS ELD Colilers International Deferred Packaging Sales Blogging freight transportation freight transportation in 2011 2014 economic forecast Hockey Associates Canadian truckers freight payment Sales Training truck capacity freight forwarders employee termination Surety bond Stephen Harper Trade Vision Government Retail robotics Conway BlueGrace Logistics Driving for Profit cars broker bonds Business skills intermodal Canadian Protests Transportation Buying Trends Survey Facebook Transport Capital Partners (TCP) freight marketplace Freight contracts CN shipper-carrier collaboration EBOR LCV's Right Shoring online shopping Business Transformation Strategy 2015 Economic Forecast Microsoft Map-21 Trucker Protest Harper Davos speech LinkedIn risk management dimensional pricing USA Truck Amazon Doug Davis Canadian economy Fire Phone Freight Management Railway Association of Canada mentoring freight broker MBA freight RFP Canada U.S. trade Success Freight Recession Bobby Harris Shipper Accessorial Charges the future of transportation Freight Capacity bulk shipping Freight Carriers Association of Canada Hudsons Bay Company General Motors supply chain management marketing Transportation Grocery Load Boards New York Times Online grocery shopping driverless truck drivers economy driver pay Ferromex fuel surcharge Whole Foods Social Media in Transportation CRM Career Advice capacity shortage RFP 2012 Transportation Business Strategies. Jugaad transportation news recession small parcel Regina Blockchain Freight Matching small business

Blog Archives

March
February
December
October
September
August
June
May
April
March
January