How freight consolidation impacts RFP bidding strategies

Jason VanoverFreight Market Blog

Figuring out how to improve annual request for proposal (RFP) bidding strategies remains elusive for many shippers, especially in the context of knowing when to expand the network to leverage freight consolidation. Consider all that goes into trucking RFPs. As noted by DC Velocity, “Most companies perform an annual or biannual Request for Proposal process with their carriers. This long and arduous process can take up to six months to complete. The process typically starts with gathering data from their freight payment provider or system. Then the user must clean the data to remove all the non-standard shipments, balance due bills or incorrect data. All this data is placed in a spreadsheet and sent to the carriers with a cover letter outlining the shipper’s timelines and service requirements.” 

Additionally, the world of freight management continues to grow in complexity, especially as shippers look for ways to maximize use of supply chain intelligence, the key to SONAR Supply Chain Intelligence (SCI), and define a more strategic path forward. One of the top issues driving this complexity is freight consolidation. And it’s important to realize how that process can affect annual RFPs and mini-bid activity. 

Why are shippers turning to freight consolidation to reduce transportation spend?

That’s the simplest question to answer. Freight consolidation is a way to capitalize on volume discounts associated with full truckload (TL). The reality of e-commerce relies heavily on parcel, which is costly. Even in looking at brick-and-mortar fulfillment and SKU proliferation, retailers have leveraged freight consolidation to turn less-than-truckload (LTL) shipments into complete TL too. As shipment volume grows from parcel to LTL and TL, it also includes a mix of possible handling points. Despite that fact, the higher volume modes lower the total landed cost and help shippers keep product price points low. Additionally, there’s only so much available capacity in air transit, so maximizing TL is critical to securing ample trucking market capacity.

Freight consolidation results in direct changes to existing contracted capacity, especially as capacity tightens

When ample capacity exists, it’s easier to find available contracts at low rates. It’s the same story of supply and demand. However, freight consolidation is a strategy typically put into action when available capacity in both parcel and/or LTL begins to shrink. There is also an argument that the overall rate of capacity expansion will coincide with e-commerce growth. As such, consolidation may still be necessary even when the market appears to be entering a cooling phase. Yet there are other indicators that mini-bids may be necessary to manage rates. 

For instance, viewing the available tenders within a given company, rejection rates may appear lower than the national or market-specific average. While that may be due to existing contract capacity, there’s another risk. Those low rejections could easily indicate that the existing relationship with the carrier is more lucrative than necessarily competitive. In other words, lower tender rejections within markets with a relatively stable value may suggest overspending. That’s one of the primary factors that powers SONAR SCI Lane Score. Meanwhile, higher rejections in other markets could also imply a direct need to reinitiate bids and find capacity with more carriers. And when freight consolidation is thrown into this mix, it muddies the waters and makes it difficult to assess how competitive existing rates appear within your RFPs.

lane by lane analysis to improve transportation management

How to promote freight consolidation with stronger bidding practices

The need to improve RFPs is absolute. All enterprise shippers know the trials and tribulations associated with an annual RFP. However, mini-bids can quickly fall by the wayside if the data is inaccessible or difficult to digest. That’s where many fail to capitalize on the biggest and most lucrative opportunities to lower freight rates during such activity. Shippers should instead follow these steps to implement faster, more effective bidding strategies before, during and after implementing or expanding freight consolidation programs:

  • Capture a larger data share to understand market dynamics beyond what resides solely in a single TMS or within your existing network partnership. 
  • Benchmark paid and tendered rates to determine how closely rate structure aligns with the market and your direct peers.
  • Simplify the RFP process by compiling expectations for rates within responses based on instant-access reports, such as the data found within SONAR SCI. 
  • Avoid the hassle of data cleansing by tapping an analytics engine that already provides a lane-level, clean view of rates, much like SONAR SCI Lane Acuity.
  • Standardize your RFP process by simplifying the process of capturing that data and making it digestible, such as using filter functions to assess the best lanes that have a lower risk of volatility.
  • Always stay forward-looking, thinking about your true volume commitments and potential following consolidation/deconsolidation, where those processes will occur along the network, and which modes will be the most lucrative. 

Take another look at that final point. It speaks specifically to the ongoing need to even consider consolidation potential beyond TL, such as using intermodal for long-haul moves that have a lower degree of time sensitivity and also are within so many miles of a given rail ramp.

Increase RFP strategic positioning with FreightWaves data at your fingertips

The best RFPs on the planet have a few common characteristics. They are easy to conduct, require less time to process and are less likely to incur pushback due to the data contained to prove what a shipper should be paying for a given lane and why. Those characteristics are iconic of RFPs processed with the backing of FreightWaves SONAR data and those that further amplify value with SONAR SCI Lane Acuity insights. Avoid the hassles of more RFPs as part of your long-term freight consolidation strategy by putting SONAR to work. Request a FreightWaves SONAR demo to get started, and maximize your value by requesting a SONAR SCI Lane Acuity demo too.