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The New Year has started off with a bang. With the stock market at record levels, unemployment at historic lows in Canada and the United States and a new U.S. tax bill that promises to put extra dollars in the hands of American purchasers, it is not surprising that consumer confidence is at a high. The strong GDP numbers reflect that people are spending money again. It is no wonder that the Dow Transportation index is also at record levels (https://blogs.wsj.com/marketbeat/2011/07/01/dow-jones-transportation-average-close-to-record-high/ ). This is great news for trucking companies.

December was also a historic month for the trucking industry. The electronic logging device (ELD) mandate took effect at the end of December. This measure which is designed to increase driver safety, is projected to restrict the availability of truck capacity in the United States. Of course, a driver shortage has already made capacity tight. Companies that comply with the mandate must work within specific time windows. Those that don’t conform to the mandate risk being pulled off the road, over time, as compliance becomes stricter.

The result is that freight rates are projected to increase in 2018. In a letter to customers (https://www.sdcexec.com/warehousing/news/12371547/jb-hunt-tells-customers-to-budget-for-10-percent-cost-increase ), JB Hunt suggested that freight rates may increase by as much as ten percent or more. At the Surface Transportation Summit held in Toronto in October 2017, John Larkin, Managing Director of Research, Stifel Financial Corp. shared the following rate increase projections with the audience.

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One of the most frequent complaints I hear from carriers, in person, on social media, or at conferences, is about the number and quality of freight bids that they receive. Carriers complain about the poor quality of the data, the number of carriers in the bid, and about the lack of professionalism in the bid process. They also assert that if the shipper would just meet with them face to face, rather than through a bid process, the result would be more successful for both parties and would take a lot less time, money and effort.

My company has designed and executed many successful bids over the past fourteen years. We have learned that for many shippers, success comes from getting “your house in order” before executing the bid. This is what is involved.

Many shippers have been moving the same freight, to the same consignees, using the same processes, for several years. In their haste to put their freight out for bid, they overlook certain aspects of their business.

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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.

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Final Reflections on Freight Bids

Posted by on in Freight Bids

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Freight bid projects have become one of the most commonly used methods of sourcing freight transportation services over the past two decades. They have become popular with shippers for obvious reasons. When done well, they produce good results. Manufacturers and distributors can strengthen their supply chains by selecting a dedicated group of professional transportation companies and save money on freight costs.

The carrier perspective on freight bids is often quite different from that of most shippers. They tend to dislike them for several reasons.

1. Many bids are not well done.

2. The process of responding to these bids is a lot of work and they often don’t produce any business.

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Monitoring carrier performance is an ongoing process. Some trucking companies will track performance for new shippers with a heightened level of intensity for a designated period of time and then revert back to old habits or standard service levels when the shipper’s focus is no longer there.

Every shipper should understand that there is no start or finish date to monitoring carrier performance. During the bid process, shippers need to outline the service performance that they expect and set up processes and reports to receive actual performance data on an ongoing basis. A web-based dashboard can allow shippers to monitor key KPIs (e.g. missed pick-ups, on-time deliveries) in real time. Monthly scorecards can provide the shipper with detailed reports and highlight any service failures that may have occurred. For new carriers, weekly reports and meetings may be necessary to ensure a smooth implementation.

As the carriers come up the learning and performance curves, these meetings can be cut back to monthly, quarterly or semi-annual, as needed. Success from freight bids is a result of a high level of attention to detail. Dashboards and scorecards that provide information on service, billing accuracy, missing or lost freight, are invaluable tools. These tools coupled with ongoing meetings will help keep the carriers’ “feet to the fire” and maintain the levels of savings achieved.

 

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If your company provides hundreds of thousands or millions of dollars in revenue to certain carriers, they are a critical part of your success, or failure and vice versa. While a rate quote may be a suitable form of agreement between shipper and carrier, for low volume service providers, it is not adequate for larger bid awards. There are several reasons for this.

First, a written agreement between the parties can spell out the nature of the business relationship (e.g. parties to the agreement, governing law of which country, state or province, services expected, etc.). Second, in this era of tight capacity, there is a requirement to obtain written commitments from transport providers on various elements of service performance (e.g. on-time pick-up, transit times, billing accuracy etc.).  These can be detailed in a set of SLAs or Service Level Agreements that can be attached to the core agreement.

Third, the full set of rates, accessorial charges and terms and conditions should be attached so there is no disputing the costs the shipper will incur over the agreed contract period.  Fourth, there should be a written understanding concerning the length of the bid award and a mechanism or formula (e.g. CPI increase) for rate increases in subsequent years. Fifth, there should be a written understanding as to what measures can be taken in the event of non-performance.

The intent is not to create legalistic, adversarial relationships with a company’s core carriers; rather signing written agreements will establish a framework for service performance and communication that can promote understanding and co-operation. In other words, the document will provide clarity with respect to expectations, performance and costs that can be quite beneficial to both parties.  

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As the freight bid process comes to conclusion, there is an urgency to award the business so the shipper can begin enjoying  the cost savings that were achieved. While this is understandable, it is important to keep several things in mind.

First, if business is being awarded to new carriers, they need to come up a learning curve before they are as experienced as the incumbents. Second, some new carriers may have over committed during the bid process and are not able to perform at the expected level. For example, they may only serve certain lanes on particular days of the week or they may not have enough head haul or back haul traffic to bring their equipment back as quickly as expected.

Sometimes the shipper is at fault by not identifying the full scope of their requirements during the bid process. The company may have forgotten to disclose or incorrectly assumed that every carrier can make an 8:00 AM pickup or delivery every day. When informed, the carrier may determine that the best they can do, with their network, is effect a 10:00 AM or 11:00 AM delivery but no earlier. This may not be satisfactory for the shipper since they may need the freight early in the morning so they can dispatch their delivery vans at 8:00 AM to provide the service demanded by their clients.

We suggest that you test market at least some of the new carriers while keeping the existing carriers in place on those blocks of business. In other words, share the freight until such time that the new carriers have demonstrated that they can meet the service requirements. Guide the new carriers through the transition in order to increase their odds of success. Remember that this will create a win/win situation. This is also a good test of the professionalism of your incumbents.

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We live in an ever-changing world. Trucking companies come and go. They are being bought, sold, merged, downsized and resized every day. Under new management, a company may flourish or deteriorate. In this era of driver shortages, carriers are being very deliberate about how they allocate their capacity. As they focus on yield management, this precious capacity is being supplied to the carriers' most profitable customers.

In addition, trucking companies are constantly adding and losing business. A trucking firm may add a new account tomorrow at a higher margin than they are receiving from your business. This may cause them to make their capacity more readily available to another client. The bottom line is that it is always prudent to prepare for a “rainy day.” In other words, there is value in having backup carriers for most of your business.

This means that it is critical during the rounds of bidding, to smooth out the variances in rates between your “low bidders” and the others who were on the short list. By doing this, it reduces the cost differential in making a switch for any of a variety of reasons (e.g. poor service, carrier goes out of business, de-markets certain lanes etc.).

It should also be kept in mind that a carrier will not be too motivated to serve your company if they are a backup carrier in name but receive no freight. To achieve success with freight bids, carefully determine your primary and secondary carriers. This should include both asset and non-asset based providers.  While the temptation is there to give all your freight to the low bidder, to maximize savings, this can be a risky strategy. Where possible, select primary and secondary carriers. Give your backup carriers a reasonable volume of freight so as to keep the primary carriers “honest” and to keep all of your transportation providers engaged in serving your company.

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We live in an era of impersonal communication. E mails, text messages, tweets and GoToMeetings have replaced face to face communication in many instances.

The decision to award millions or tens of millions of dollars in freight transportation to a set of carriers is a very important one. You don’t want to entrust your company’s business and reputation to poor service providers that say they will meet your needs and don’t deliver. You don’t want to commit your business to carriers that offer low pricing to secure the contract and then come back a few weeks later with a rate increase, claiming they misunderstood the bid. These situations happen all too often and they can be very disruptive and financially punitive to shippers.

It is our view that the bid evaluation and award process cannot be done effectively through automated computer programs. There is a requirement to meet “eyeball to eyeball” with companies that may be your future business partners. These meetings should have a formal agenda. In addition to pricing issues, there is value in reviewing the carriers’ operations in detail. This includes:

a) fleet size and age

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