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How to Optimize Your Freight Transportation RFP: Nine Essential Pre-Bid Questions
September 19, 2024
Thoroughly preparing before putting your freight out for bid is important to securing the best logistics providers for your company. Simply sending a spreadsheet to hundreds of providers without proper planning can result in wasted effort and less-than-ideal outcomes.
In this article, we will explore nine essential questions you should consider to set yourself up for success before sending your RFP. By asking these questions, you will be better positioned to receive competitive rates and the service levels your business requires.
WHAT IS A FREIGHT BID?
A freight bid, (also referred to as a Request for Proposal (RFP) or Request for Quote (RFQ)), is a formal process where shippers invite logistics service providers to submit proposals to handle their freight transportation. This process is crucial for evaluating potential partners and ensuring you get the best service and rates.
NINE QUESTIONS TO ASK TO AVOID FREIGHT BID FAILURE
1. What am I putting out for bid?
- Consult with your shipping staff: Understand any special solutions your current providers have in place for your business. If your supply chain relies on a carrier for a customized solution, bidding out that business might backfire.
- Evaluate the risks of switching providers: Consider what might happen if you switch to a lower-cost provider and things go wrong. Could you restore the relationship with your current provider with minimal disruption? Also, assess whether your current provider offers value beyond just cost savings. Switching providers might jeopardize any unique solutions already in place.
- Understand your products and their shipping needs: Identify any special shipping requirements for your products.
- Do any of your pickup or delivery locations have considerations like after-hours appointments or extended waiting times that could affect capacity?
- Does your freight require specialized equipment, such as logistics trailers or vented reefers?
- Which lanes typically incur the most accessorial charges, what are they, and why are they being charged?
- Is your commodity subject to regulations, such as those from the Food and Drug Administration, that necessitate washout tickets, seals, or other standards?
- Do you need security clearances, like TWIC cards, for pickup or delivery?
- Does your product have an odor or leave debris that might be unfavorable to many carriers?
- Is your product temperature sensitive? If so, what are the temperature requirements?
- Do you require all carriers to hold certifications like CTPAT or Smartway?
- Will you be providing your own fuel and accessorial schedules?
Disclosing any special requirements, fuel or accessorial schedules, and challenging shipping/receiving locations upfront to your bidders is essential. Failing to do so might lead participants in your RFP to submit bids with unrealistically low prices or commit to capacity that doesn’t align with the actual demands. Since you’ll need to hold your carriers accountable to specific KPIs, it’s important to give them the information they need to succeed.
2. What does a good carrier look like to you?
Conducting a Request for Information (RFI) before putting your freight out for bid is a strategic step that can significantly enhance the effectiveness of the procurement process. An RFI allows you to gather valuable insights from potential logistics providers about their capabilities, capacity, service offerings, and industry expertise.
This preliminary step helps you better understand the market, refine your requirements, and most importantly, disqualify providers that do not meet your standards from participating in your bid. By conducting an RFI, you can ensure that your RFP is targeted and well-informed, leading to more competitive bids, tailored solutions, and ultimately, better alignment between your business needs and the services offered by potential providers.
3. Define success metrics: what would a successful bid outcome look like?
Imagine yourself six weeks after awarding your lanes to the successful bidders in your RFP—what does success look like? Consider the following:
- What will the bid report to your management look like?
- Which KPIs will you track?
- What are the minimum KPI expectations for providers to remain in your network?
- How will service to your customers improve?
- How will these service providers help streamline your operations?
- How will you scorecard providers over time to assess which ones deliver the most value?
- How will you determine if a provider has truly saved you money?
Clearly defining your company’s goals will help you establish the KPIs for the bid. This is a crucial step—while low-cost providers may seem appealing at first, poor service can lead to higher costs in the long run. Knowing how you’ll measure success and communicating your expectations to bidders upfront is essential.
4. How could fluctuating freight market conditions affect your bid?
In the freight market, supply and demand can fluctuate significantly. During a carrier’s market, freight volumes are high and the availability of trucks is limited, causing rates to rise quickly. On the other hand, in a shipper’s market, where freight volumes decrease and trucks are readily available, it presents an opportunity to reduce costs while maintaining high service levels. Understanding these market dynamics will help you better assess your purchasing power, structure freight contracts effectively, and plan for market shifts. Here are some key considerations:
Reducing Costs: Your role involves minimizing supply chain expenses, so when capacity is abundant, you can leverage that to negotiate lower rates. However, it’s important to recognize the balance—carriers still need to turn a profit, and driving rates too low can have serious consequences:
- If rates are pushed too low across the board, it could force some carriers out of business, exacerbating the driver shortage.
- Reduced affordability might lead to neglected maintenance, resulting in more breakdowns, accidents, and claims.
- Frustrated carriers might provide lower levels of service due to unsustainable rates.
- Carriers may prioritize shippers who treated them fairly during downturns when the market shifts in their favor.
Contract Duration: How long should you hold carriers to their rates? In a low-volume, high-capacity market, shippers often put their freight out to bid to secure lower prices from their carrier network. The expectation is that if a carrier wants to retain your business, they should reduce their rates. However, consider that natural disasters, geopolitical events, elections, or pandemics can quickly shift the market in favor of carriers. In such scenarios, carriers may not honor the low rates they previously committed to, as they can find more profitable opportunities elsewhere. Being unrealistic with your terms could leave your supply chain vulnerable.
Supply chains and carriers depend on each other for success. Fair treatment, even when you have the advantage, is key to building lasting, mutually beneficial relationships.
5. What legal requirements do I need to address to avoid later delays?
A contract’s Terms and Conditions (T&Cs) help provide legal protections and guardrails around relationships with providers. Knowing the common points of contention for carriers when reviewing T&Cs and addressing them upfront will help avoid delays later. Many common T&C issues revolve around liability, insurance, and payment terms. Get ahead of lengthy implementation issues by streamlining the legal process up front.
6. How broadly can I enforce this decision in my organization?
After the bid, how easily can you switch suppliers? Will it be feasible to do so across your entire company, or only within certain business units or regions? Answering these questions will help you understand the extent of your authority to implement changes based on the RFP outcomes. Ensuring company-wide alignment and securing buy-in from all stakeholders is crucial for a successful bid implementation process.
7. What is your total freight spend related to this bid – including accessorials and additional costs?
Work diligently to gain an accurate understanding of the total freight spend for the lanes you’re putting out to bid, including accessorial charges. A thorough grasp of your current freight costs will enable you to evaluate proposals more effectively.
Use this insight to critically assess the proposals you receive. If a rate seems too good to be true, it might be. Keep in mind that many companies rely on accessorials to maintain their margins, so don’t be misled by low base rates without considering the impact of accessorial fees.
8. What will the new normal look like after the freight bid?
Determining the number of transportation providers you want in your network after a successful bid will guide how you handle RFP responses.
- Are you looking to have multiple carriers on high volume lanes to ensure you have consistent capacity?
- Do you prefer to consolidate as many services and modes with one provider as possible to improve network management?
- Will you use a waterfall tendering system or award pre-set volume to each successful bidder?
It is always a best practice to build relationships with your providers, including some facetime with their leadership, if possible. Explore strategic relationships and invite them to consult on your supply chain to uncover hard and soft cost saving opportunities. Making your transportation provider a strategic partner can have lasting benefits to your supply chain and drive business growth.
9. How will you communicate before, during, and after the freight bid process?
Clear communication with all bidders, including sharing detailed information about your requirements and value expectations, will minimize the risk of problems after you award your lanes. Strive to over-communicate, and don’t be afraid to reiterate and repeat yourself to get the point across.
traffix managed transportation solutions
At TRAFFIX, we specialize in solving complex logistical challenges for shippers. Through our Managed Transportation Solutions (MTS), we take on the heavy lifting of conducting freight bids, including vetting carriers, managing communications, and reviewing bids on behalf of our customers. Beyond administering bids for our MTS clients, our extensive experience as a transportation provider, having participated in thousands of bids, has made us experts on both sides of the RFP process. Interested in outsourcing some or all of your supply chain? Contact TRAFFIX today!
