Recent stock market and currency value declines in China and Canada point to a challenging year ahead for the economies of these two countries and many others around the world. While the United States has remained fairly stable amidst current world turmoil, its high valued currency may slow exports to its key trading partners. If business levels deteriorate this year, this will place added pressure on shippers who are trying to manage their freight costs? Is this a year to conduct a freight bid?
Certainly faltering economic conditions typically encourage manufacturers and distributors to conduct RFPs to keep freight costs as low as possible. Beyond the general state of the economy, there are a usually a range of conditions that set the stage for a successful freight bid. Here a few to consider.
Has an RFP been conducted within the past 3 years?
If the answer is yes, it may be difficult to “go back to the well” so soon and obtain cost reductions. If not, three years is a long time in freight transportation. If a shipper has accepted freight rate increases over the past 3 years, this alone is probably reason enough to test the market. The compounding effect of multiple rate increases over 3 or more years may have caused freight rates to drift higher than market rates.
Has the company been experiencing a loss of market share in specific geographic areas?
Market share losses can be caused by multiple factors. A company’s products and services may no longer be competitive in terms of features, price and/or availability. With some of our clients, freight transportation can be part of the problem. In some cases, slow or inconsistent deliveries may be hampering competitiveness. Some carriers get sloppy or complacent over time. In other cases, competitors may have created other supply chain models (i.e. better local availability and last mile delivery processes, better or lower cost replenishment processes, multi-modal options etc.) that make certain companies less competitive. Discrepancies in freight rate costs will quickly be highlighted in an RFP process.
Is the company receiving service complaints from customers that are not being addressed and corrected in a timely manner?
This can be a telltale sign that a company’s supply chain and/or carriers are not meeting the requirements of its customers. An RFP will allow a company to look at the range of carriers that are available and negotiate better service consistency, transit times and/or rates. Has the economy or the economics of the business changed in a material way? Is the company now paying freight costs that are not consistent with current economic conditions or with the economics of the business? Is the company still paying individual LTL or small parcel rates on each shipment but moving multiple shipments to the same locations on a daily basis? Are these cost savings opportunities being hidden from the shipper? Maybe it’s time to capitalize on these cost saving opportunities.
Is there an opportunity to better leverage the company’s shipping volumes in specific geographic areas?
Is there an opening to pool shipments from certain warehouses or manufacturing locations to create greater economies of scale from a transportation perspective? Are there opportunities to share trailer space with other sister companies? Has the company made any acquisitions over the past few years that provide greater leveraging capabilities? Are sales (and shipping volumes) higher than they were a few years ago?
Are there alternate modes of transport that would better meet the needs of customers?
Has consideration been given to shipping goods via intermodal service at a lower price point? Would customers be willing to accept a few days longer transit times to reduce costs? Would customers benefit from an expedited service that is superior to what is being supplied in the market? If the answer to some of these questions is Yes, then maybe the time is right to conduct a professionally directed RFP exercise.
Dan Goodwill & Associates has been successfully conducting freight transportation audits and freight bids for twelve years. We have saved our clients millions of dollars over the years. If you need help, please don’t hesitate to contact us at dan@dantranscon.com.