Freight Bids or Freight RFPs have been around for over two decades. Every year we hear comments about their imminent demise. Unfortunately for many motor carriers, this is wishful thinking. While these exercises are often detested by freight companies, they are popular with shippers across North America. Why? When well done, they provide the shipper with better service providers at a lower cost.
One of the popular themes at many freight conferences is the talk of shipper-carrier partnerships and collaboration. I have heard this theme for a decade. If only shippers would sit down with their carriers, they could pull costs out of their operations and become more efficient.
While this is possible and even probable, the problem with this scenario is that the shipper is left wondering if carrier B could pull even more costs out of the operation than carrier A. This explains why so many shippers have contracted their freight to logistics service providers. They are not convinced that if they forgo the RFP in favor of collaboration, they will derive the maximum benefit. Thus the popularity of freight bids.
With looming capacity shortages again and rising freight rates, this will likely incentivize shippers to conduct even more RFPs. If freight bids are a “necessary evil,” what can carriers do to optimize their chances of success? As someone who has sat across the table from carriers for over a decade and observed their behavior, here are a few tips.
“Get in the Game”
Every carrier wants to be considered for any piece of business that is a fit for their operation. There are thousands of freight bids conducted annually across North America. The starting point for participation is a strong sales effort. You can’t secure business if your company is not selected to participate in the bid. Therefore, the first step is to inform as many potential shippers as possible of the range of services offered by your company. Carrier reps need to do their fact finding. As part of the process, they need to inquire as to how carriers are selected and rates are negotiated. If a shipper has an annual bid, it is important to find out when and stay in touch with the contact person. Good sales reps “skate without the puck” and position their companies to capitalize when these types of opportunities present themselves.
Don’t Assume Your Company is in the “Driver’s Seat”
If your company is the incumbent carrier, do not assume that you are in the “driver’s seat,” even if you have had a good relationship with the shipper. The process of initiating a freight bid often starts at the top. A new management team may take a fresh look at their financial results and determine that transportation costs represent an area of opportunity. A new CFO or VP of Logistics may view transportation costs as potential “low hanging fruit” in the search for cost reductions. Even as incumbent carrier, make sure you present a winning bid and compelling “value proposition.”
Make sure your Costing Model is Up to Date
Having sat at the negotiating table for so many years, I am amazed at the variance in rates that you see when you ask carriers for a bid. Certainly some of the variance can be explained by the volume of business in the lanes listed in the bid, the quality of the business, the mix of freight and how balanced an operation they run. While this may explain some of the variances, others can only be explained by the fact that the carrier may not have correct or up to date costs for the key components of their business (i.e. pick up, cross dock, line haul etc.). Don’t miss out on an opportunity to add valuable revenues and profits by having an obsolete costing model. Make sure your costing model is up to date.
Be Creative
This may appear to be a peculiar suggestion in view of the specific requirements outlined in some freight bids. In fact, being able to think “out of the box” and develop a solution custom designed for each specific shipper is exactly what many shippers are seeking. Each carrier that receives a freight bid should contrast the bid requirements with its various operating divisions and business partners. If a carrier has multiple divisions, it may make sense to look at which pieces of the bid can or should be met by each division. Fitting the various segments of the shipper’s business to the appropriate business unit of the carrier may be the best opportunity for your company to present the shipper with the best solution at the lowest cost.
Bid on what your Company Does Best
Since many sales people are on incentive programs, they are encouraged to land new business. A new account will fatten up their bonuses.
There is a big risk in being “greedy.” We too often see carriers quote on business that they cannot perform well. Here is the danger. First, taking this approach damages the credibility of the carrier. Second, if the carrier secures some business that they cannot service well and fails, they likely run the risk of losing the business that they do service well.
Check out next week's blog for more tips on how to achieve success with freight bids. To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).