The subject of Shipper-Carrier Collaboration and Freight Bids came up in at least three tracks at this week’s Supply Chain Canada Annual Conference, presented by SCL and Canadian Industrial Transportation Association. The subject was discussed at length during a panel discussion entitled, “Shipper-Trucker Relations” led by Lou Smyrlis, Editorial Director, Transportation Media, Business Information Group. To address the sad state of relations, the panelists highlighted some of the issues raised at a recent meeting held between representatives of the Ontario Trucking Association and the CITA, one of Canada’s leading shipper advocacy groups.
This discussion was of great interest to me and my company since we have been involved with freight RFPs (Request for Proposals) for over nine years, helping shippers design and execute their bids and helping carriers respond to some of the more complex RFPs. Here is some of what I heard this week and a few ideas on how to fix several of the problems. First here is a bit of background.
The Great Recession – the Trigger for the Freight Bid Mania
Prior to forming my consulting practice in 2004, I worked for carriers in the freight industry for many years. Freight bids have been around for at least twenty years. Before entering the consulting arena, I had seen and responded to my fair share of RFPs. Freight bids became very prevalent during the Great Recession in the late 2000s. As business volumes and revenues shrank, many shippers employed this tool to drive down their freight rates.
One of the panelists on the Shipper-Carrier Relations track spoke about how overused and abused the tool became. He highlighted the fact that some shippers conducted as many as three bids on the same freight in the same year to drive down rates. Freight bids have now become an overworked and often times poorly used instrument to source modes and carriers. One trucking company executive on the panel was very blunt in his views on freight bids. He stated simply, “I hate them.”
What is the problem with Freight Bids?
From the panelist comments and my own experience, there are several problems with the RFP process. First, designing and executing a successful freight RFP takes knowledge and skill. While many shippers may think that assembling a block of freight data and sending it out to the market is a simple task, this is just one part of the RFP process.
There is so much more to freight transportation than securing competitive freight rates. Not all carriers are equal. They vary greatly on:
• Range of services
• Pick-up and delivery service
• Customer service
• Service coverage
• Size and type of fleet
• Quantity and quality of drivers
• Safety record
• Financial resources
• IT capabilities
• Green strategies
• Backhaul on specific lanes
Freight carriers or freight management companies supply so much more than transportation services between A and B to C, D and E. They supply varying value propositions. They are good in some areas and not so good in others. A certain level of expertise is required to differentiate between the poor, good and great carriers.
Another problem is that most freight bids have too short a time horizon. While many shippers may go to market with a freight bid every year, carriers do not buy or lease equipment for one year. At the end of the RFP exercise, shippers may only be prepared to commit to a one year arrangement. If the shipper can save a few percentage points on freight during their bid the following year, this puts their incumbent carriers in a bind. Some incumbents may then have to roll back their rates (at a time when costs are increasing) or re-employ these assets the following year. The carrier assumes all of the risks.
Data is the key to a successful RFP. The old adage Garbage in/Garbage out applies equally to freight bids. The weakness in so many RFPs is that the data supplied is incomplete. To respond properly, carriers have to know about seasonal peaks and valleys, about the unique requirements of the shipper, and about their customers’ expectations (e.g. specific appointment delivery intervals, transit times etc.). Freight transportation is a people business, not a spreadsheet business. It is all about delivering consistent, on-time service.
What do Shippers want?
Shippers want their carriers to understand their needs and requirements, to be open and honest about what they can and cannot do well and to better articulate their value propositions. While RFPs typically contain a set of forms to complete, this should not preclude the carriers from asking questions if they don’t fully understand the shippers’ needs and effectively communicating their value propositions, even if not asked to do so. Mike Owens, Vice President of Physical Logistics at Nestle Canada made an excellent point when he specifically suggested that carriers should highlight their multi-year green strategies and use them as leverage to encourage shippers to commit to longer bid award periods.
What do Carriers want?
Carriers want shippers to think more strategically, to share more and better information, to take a longer time horizon, to view them as partners rather than as just transportation providers and to make longer term commitments.
They want shippers to meet with them face-to-face so they can have a meaningful dialogue about capabilities and requirements. They don’t want them to hide behind a wall of e mails and spreadsheets. Carriers would like their prospective (and existing) clients to visit their facilities, engage in an honest and open dialogue, to display some “give and take,” and then after carefully weighing the value propositions, capabilities and freight rates, make a thoughtful, informed, long term commitment.
Some Positive Signs
There are some positive signs. It is encouraging to see two of the largest shipper and carrier organizations in Canada engaging in a dialogue on how to improve collaboration. The next OTA-CITA meeting on this topic is planned for the fall.
It was also encouraging to hear Doug Harrison, COO of the Day & Ross Group speak about a change in the RFP process that his company is experiencing. He commented that he is seeing more RFIs (Request for Information) rather than RFPs. This is a sign that shippers are taking the time to assemble meaningful information and to take a much more thoughtful approach to selecting their business partners.
As a final comment, my company has been involved with dozens of successful freight RFP projects over the past nine years. Well-crafted freight bids that take into account the issues raised above can be quite effective. This does not mean that the RFP/RFQ/RFI process cannot be improved. It can and should. If you have any thoughts on how to improve the process, please share them with the readers of this blog.
Please note that we will be featuring a track on how to improve the RFP process at the upcoming 2013 Surface Transportation Summit (http://www.surfacetransportationsummit.com/conference/register/) on October 16. A “blue chip” panel has been assembled to address this topic. Register now and take advantage of the early bird rate.
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