The subject of online freight bids and internet freight auctions came up a few times at the Surface Transportation Summit that took place in Toronto on October 13. The carriers that raised this topic spoke of the high volume and poor quality of bids that have been hitting the transportation industry this year. One carrier was so fed up with the internet auctions in which they were participating that they made a decision to opt out of them.
It is clear that where there is a market opportunity, there are a multitude of companies that are seeking to meet the needs of unsuspecting shippers. It was apparent from the carrier comments that there are a number of unqualified or underqualified, unprofessional providers, some with very limited expertise, who are providing an unsatisfactory service to their customers and a disservice to the industry. These are some of the issues that were brought to light.
There are bids on the market where the carrier is being asked to quote on 6000 lanes of traffic, a massive undertaking. In one case, the carrier was provided with shipment data that stated that there are 1600 truckloads of freight that move on a particular lane each year. The carrier that is the incumbent, looked at their data and noticed that they move only 160 LTL shipments on the particular lane each year.
The company conducting the bid advised the carrier, after round 1, that their rates were 25 percent too high and that they need to adjust their rates to remain in the bid. They also mentioned that this was going to be a four round bid.
The carriers are also being advised that there will be no face to face contact. All of the bidding will take place online. What can be gleaned from this data?
A lot. First, to conduct a quality bid exercise, the carriers have to be supplied with accurate and complete data on shipment volumes, weights, loading and unloading processes and a host of other information. With poor quality data, the shipper is assured of Garbage In/Garbage Out.
Second, carriers very rarely have 25 percent margins on their freight. To think that a new carrier can move the freight for twenty-five percent less than the incumbent and that there will be pressure to reduce these rates even further over a four round process casts significant doubt on the expertise of the bid manager and the quality of carriers they plan to engage to serve the shipper. It also begs the question of the integrity of the company conducting a bid. You don’t often see a twenty-five percent reduction in rates after one round of bidding. Unless a shipper has tens or hundreds of millions of dollars of freight, a four round bid exercise is ridiculous.
Third, the carriers that receive bid awards are going to be a shipper’s key supply chain partners. While price is important, so is on-time service, the quality of their IT capabilities, their safety record, the size and quality of their fleet, the experience of their management team, and a range of other variables. While internet auctions are common for a variety of industries, it is absolutely essential that shippers make decisions on partners based on a full understanding of their capabilities and performance. While it possible to make a decision, online, about a carrier that receives a handful of shipments a year, it is critical for shippers to personally engage with carriers that are receiving major, and in some cases, minor bid awards.
The Bottom Line
My company has conducted dozens of professional and successful freight bids over the past 13 years. These kinds of problems do not occur when you work with us or one of our quality competitors. There are clearly a number of companies that don’t know what they are doing.
In recent years, we have observed a number of companies that sell shippers on conducting an internet freight auction, at no charge. They earn their fees by getting the shipper to agree to a percentage of the savings that are achieved. The problem is that when a bid is conducted in a slipshod way, the projected savings aren’t real. They don’t materialize. The carriers start handling the freight and realize that the volumes and shipment weights aren’t correct. If the business is awarded to low service carriers, they start to fail on service very quickly. Within a few weeks, the carriers come back and ask for rate increases. The shippers then bring back their incumbent carriers in the hope that they will handle the freight. The freight bid service provider walks away with a nice fat fee. The shipper is red-faced, higher management is justifiably upset, people often lose their jobs and the carriers are aggravated about losing the freight they took so much time to bid on and secure. Nobody wins.
Buyer beware. Some unqualified and unscrupulous companies have come to the freight bid provider industry. Do your due diligence before you hire an outsider to conduct your next freight bid.
If you need help with a freight bid, call me at 416 932 9701 or send me an e mail at dan@dantranscon.com. 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).