Why have RFPs become so much less effective over the last 18 months? For as much discussion as there’s been, the answer is relatively simple: it’s never been harder for shippers and carriers to predict out future streams of business.
Shippers have always depended on being able to segment the year into peak seasons. Spot rates typically rise above contracted ones from May through August and November to December and fall below annual contract rates from January to April and September through October. This semblance of predictability allowed those involved in RFPs to agree on annual rates, accommodating for the fact that the fair market rate would split relatively equal time above and below their contract rates.
This “stabilization” has all but disappeared yet many shippers are gearing up to offer annual RFPs in Q4 for 2022. There is simply nothing they can do, many shippers will say. These new conditions are caused by fundamental shifts in the market–most notably increase in demand and reduction of supply–that are “out of their control.”
On the flip side, it’s never been easier to create a regular flow of information between shippers and carriers in real-time. That’s not to say it’s easy, but there is technology that facilitates mini-bids and allows shippers and carriers to give each other more accurate information on lanes more frequently. Carriers get a much better sense of their ability to fulfill a contract, which puts them in a better position to deliver high service for shippers: everybody wins. It also helps shippers avoid the spot market–shippers should expect that carriers will fulfill more of their contractual obligations, improving tender acceptance.
The common misconception to this approach is that shippers will pay more. More frequent mini-bids means locking in record high rates more often. The reality: everyone is paying more than last year. If you take a closer look, however, shippers will pay even more if they keep with long-term contracts at 50% tender acceptance, which puts 50% of their freight at the mercy of those record high spot rates. If you take an even closer look you’ll see that rates on some lanes have increased 300%, but many others have only increased by 30%. The 300% lanes need to be put out for bid more often. This requires having all lane information centralized so you can see how your lanes compare to the market.
People are tired of hearing that the RFP process is broken, shippers and carriers want transportation planning that works. Run a dynamic bid cycle without increasing your workload. Providing carriers with real-time information and the ability to adjust their rates slightly to ensure solid service levels will create a situation where everybody wins. Shippers will pay a little bit more on contracts, but you’ll be saving on the spot market and getting better service. Check out RFPGuide.com👇
Transforming the future of freight, Loadsmart leverages artificial intelligence, machine learning and strategic partnerships to automate how freight is priced, booked and shipped. Pairing advanced technologies with deep-seated industry expertise, Loadsmart fuels growth, simplifies operational complexity and bolsters efficiency for carriers and shippers alike. For more information, please visit: https://loadsmart.com.