Top 5 Mistakes in Transportation RFPs
Executing a smart request-for-proposal (RFP) strategy enables shippers to manage costs, increase service levels, and meet capacity needs. Here’s what to avoid:
Shippers can mitigate risk and successfully manage capacity needs by avoiding the most common pitfalls.
1. Unclear Carrier Strategy
Instead of sending every lane to bid or rolling every lane over to your 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 (RFI) process.
In addition to lane and volume requirements, qualify carriers by considering variables like equipment types, terminal locations, SmartWay certification, load board activity, driver staffing, 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 Efficiencies
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. Plus, make sure to consider other factors such as service levels, lane density, and overall network fit for a comprehensive carrier evaluation.
Maximizing RFP Success
Shippers rely on DAT iQ to build and execute a smart RFP strategy and avoid common pitfalls.
DAT iQ is the industry leader in transportation rate, capacity, and performance analytics.
About Dave Halsema: With more than 10 years in logistics and supply chain management, Halsema has led highly effective sales, strategy, operations, and client success teams. He has a proven track record of revenue growth and performance in competitive markets and industries. At DAT, Halsema leads the cross-functional shipper team to engage and improve prospect and client experiences. To learn more, visit dat.com/knowledgebase