Top 5 Mistakes in Transportation RFPs Shippers can mitigate risk and successfully manage capacity needs by avoiding these common pitfalls. By Dave Halsema, Principal Owner, DH Logistics Consulting
An ef cient analysis and assignment of carriers to lanes ideally would be completed within one month. Delays of four to ve months can
undermine effectiveness. A common mistake that shippers make is not providing enough time for carriers to develop a strategy to respond to an RFP. They also sometimes fail to provide between-round feedback with targets. Shippers should avoid waiting too close to the expiration of a current contract to engage carriers. For parcel shipping, the lead time should be particularly long. “Especially on the parcel side, if the contract is up in 3-4 weeks, you have to just extend at that point,” McDonagh says. “Parcel agreements are typically three years long, so give yourself plenty of time before the contract expires to negotiate. I’d recommend a ballpark gure of about six months out.” “That guidance is shorter for LTL though, both in terms of contract length—typically one year long—and lead time—seven to eight weeks prior to expiration,” Day adds. De ning terms, service levels, and performance metrics is only the beginning. “You need to periodically evaluate performance against those terms and then de ne what each party can do to improve,” Day says. Burke recommends a regular review of terms, scope of services, and performance to ensure they remain relevant and effective. Conditions can change. Burke says shippers should be open to renegotiating terms and conditions depending on changes to the business, market, client or provider needs. “Transparency and communication go a long way to ensure a successful RFP for all parties involved,” Burke says. RFPs are not about winning or losing, but about shippers and carriers enjoying a thriving relationship. “The only way a negotiation works,” Lang eld says, “is if both parties come out feeling they won.” n
1. Unclear Carrier Strategy Instead of sending every lane to bid or rolling every lane over to incumbent carriers, use the 80/20 rule—focus on the 20% of lanes that account for 80% of your volume—to identify the high-priority lanes where additional flexibility will improve cost and service the most. During the pre-selection process, pinpoint carriers that fit your unique requirements, then use online databases to streamline the manual request-for-information process. In addition to lane and volume requirements, qualify carriers by considering variables like equipment types, terminal locations, SmartWay certification, load board activity, driver stang, and more. 2. Limited Carrier Mix Economies of scale do not apply to transportation, since more volume often does not generate better prices, so shippers tend to see higher-than-market rates if they allocate all their volume to one or two carriers. Shippers can better manage costs and service levels by diversifying the carrier base. Leveraging several carriers on a lane enables better carrier coverage and network fit, reducing the risk of spot market exposure from routing guide failures. Clear and concise expectations and feedback between bid rounds are critical to building a reliable and diverse carrier base through the RFP process. 3. Not Focusing on Eciencies Many shippers expect carriers to conform to their networks with little success. Instead, try taking a collaborative approach by focusing on economies of scope to align capacity with carrier networks. Combine lower-volume lanes that have similar origins and/or destinations to create more attractive bid opportunities, such as clustering locations within a 75-mile radius or using three-digit zip code ranges known as key market areas (KMAs). Carriers benefit from the volume density, which cuts down on ad hoc negotiations. 4. Missing Key Details Quoting annual volumes in the RFP provides a high-level view of capacity needs, but obscures nuances like volume spikes and seasonality that can wreak havoc on networks. Shippers can provide clarity and improve bid confidence and accuracy by segmenting lanes and network patterns. This allows carriers to prepare to service lanes ahead of the ebbs and flows in volume, enabling shippers to secure more predictable rates and reliable long-term capacity throughout the duration of the contract. 5. Short-Sighted Evaluation Simply selecting carriers based on the lowest rates often costs more in the long run. When contract pricing is too low during times of tight capacity, shippers are often forced to turn to budget-busting spot market premiums when they face tender rejections. Evaluate past, present, and future rates on key lanes to establish realistic budget expectations and secure year-round capacity. Consider other factors such as service levels, lane density, and overall network fit for a comprehensive carrier evaluation.
162 Inbound Logistics • January 2024
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