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Carriers and shippers debate value of RFPs

MISSISSAUGA, Ont. -- Are Request for Proposals (RFPs) a constructive, mutually beneficial process for both shippers and carriers, or are they, as one motor carrier executive deemed them, “Really friggin’ pathetic”? That was...

MISSISSAUGA, Ont. — Are Request for Proposals (RFPs) a constructive, mutually beneficial process for both shippers and carriers, or are they, as one motor carrier executive deemed them, “Really friggin’ pathetic”? That was the most contentious issue of the day during the 2012 Surface Transportation Summit, which brought together more than 200 carrier and shipper executives.

The event, sponsored by Motortruck Fleet Executive, Canadian Transportation & Logistics and Dan Goodwill & Associates, included a spirited debate on whether an RFP builds, or damages, shipper-carrier relationships. Mark Seymour, CEO of Kriska Transportation, got the discussion rolling when, while lamenting the tremendous amount of waste in the system, called for better collaboration between shippers and carriers and declared “business tenders are no way to get waste out of the system.”

Brian Springer, vice-president, transportation with Loblaw Companies, when speaking later the same morning as part of a Managing a Win-Win Shipper-Carrier Rate Negotiation panel, defended the process. “I tend to disagree,” Springer said of carrier notions that RFPs are counterproductive. “Formal RFPs, when done in the right way – not a formal RFP where I’ll just grab the lowest cost and run with it, that doesn’t do anyone any good, you’re just back in the same place six months down the road – give you an opportunity to share all your lanes both ways with the carrier community and then really capitalize in balancing those lanes with carrier freight. So, I think there are some good opportunities there.”

Dan Einwechter, CEO of Challenger Motor Freight, was part of the same panel discussion. He countered: “For every good RFP we see, I’d tell you I see two bad ones, where they’re empowering the wrong people to put data together, it’s a dumbing down of information, it’s not correct information and at our place, RFP at times means ‘Really friggin’ pathetic,’ because of the lack of data and because of inconsistency.”

Too often, said Einwechter, shippers are hiring outside agencies to put together RFPs without a comprehensive understanding of transportation and logistics. “What happens is that the incumbent carrier pays the price, and at times our shipper, the client, who you may have a strong relationship with, pays the price because at the time when they least need or deserve turmoil, they have it intentionally inflicted upon themselves,” Einwechter said.

He said Challenger recently saw an RFP that listed $45 as the target rate for loads going from Southern Ontario to Toledo, Ohio. “I told my guys, ‘Throw it away, don’t even look at it. There’s no accurate data in there, don’t waste your time,’” Einwecther recalled.

Wes Armour, CEO of Armour Transportation agreed that RFPs often impose an unnecessary burden on carriers. He said his company has received RFPs from customers that generate $30,000-$35,000 per year in revenue. “Any money we make on them, we spend trying to fill out the RFP,” Armour said. “The questions are ridiculous, there’s no room for flexibility, such as ‘Can we give you an intermodal rate or short-sea shipping?,’ there’s none of that in there. It’s ‘What is your rate?’ and that’s what they’re after.”

For carriers that have established strong relationships with their customers, there could be opportunities to sidestep the RFP process. Michael Tan, divisional vice-president, supply chain and transportation with Hudson’s Bay Company, admitted he has forgone the process with sophisticated carriers such as Armour. “When we sat down with Armour, it was initially predicated on an RFP,” Tan said. “My team and I quickly decided to throw the formalities of the RFP out the window, and instead ended up with very candid dialogues with Wes and his team. I don’t take the same approach with each negotiation, but in this case it worked out very well.”

Einwechter said RFPs generally fail to reflect the added value that large, sophisticated fleets can bring to the table, such as quick access to data, monthly route analysis, a customer’s trends and patterns, etc. “That stuff doesn’t get picked up in an RFP, so when it comes to decision time, our contact who would like to deal with us, is pressured from somebody else to go with the cheaper rate and they don’t realize what they’re going to be losing, so we have to keep selling that value proposition to our customers,” Einwechter said.

Springer admitted that oftentimes, the incumbent carrier is at a disadvantage through the RFP process because it may be familiar with some of the inefficiencies in the system and will build that into the rate, while a competitor that’s bidding on the freight for the first time will not. Springer advised carriers to identify these extra costs in the RFP and not to bury them in the rate. He also admitted shippers need to be aware of these nuances when making decisions.

“The RFP process is an opportunity for carriers and shippers to get connected, not just grab the lowest cost and run,” Springer said. “It really comes back to understanding what’s in an incumbent’s cost and what’s in the new carrier’s cost.”

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