This is one of the most frequently asked questions we receive from our shipper clients. Here is our perspective.
The Forces that Shape our Views on this Subject
For 20 years, during my early years in the transportation industry, I led asset-based carriers and non-asset-based freight broker organizations. My colleagues and I were on the receiving end of many shipper freight bids.
For the past 20 years my associates and I have been conducting freight bids for shippers. From time to time, we have been asked to help carriers respond to complex bids
We know that many carriers view freight bids as dreaded adversarial exercises. This view has arisen since some shippers have used freight bids as transactional tools to take advantage of carriers when they have leverage. We have seen shippers conduct bids on a quarterly basis to exploit the market dynamics.
We have also seen carriers take advantage of their leverage when the market is more favorable to them. As Covid concerns created a capacity shortage in 2021 – 22, we saw carriers take large rate increases, without negotiation. This has resulted in a certain level of skepticism about the integrity of the bid process.
Shipper – Carrier Relationships
From our many years in the business, we believe we have a full understanding of the needs of both parties. We recognize that shippers and carriers need each other. Shippers need reliable carriers to provide consistent, cost competitive service from their vendors to their manufacturing plants and from these plants to their customers. Carriers require shippers with consistent volumes, at profitable rates, so they can run sustainable businesses. In other words, these relationships are essential to the success of both parties. So why aren’t all shipper-carrier relationships effective?
Why Some Shipper – Carrier Relationships Fail?
With shippers under pressure to keep transportation costs low (to maximize profits), there are situations where transportation managers will do end runs on their core carriers to secure lower rates. Carriers will also do end runs by supplying their limited fleet equipment to more profitable customers (e.g. higher revenue per mile and/or with better paying backhaul). Some carriers will offer low rates to secure a block of business and then try to raise the rates to bring them to profitable levels.
Businesses are dynamic organizations. As they evolve, there are times when the two parties drift apart as their needs change. There are times when carrier service levels decline. There are times when the volume of business between the parties is so minimal that a transactional rather than strategic relationship is quite satisfactory.
However, when significant volumes of freight are being tendered and transported by designated carriers, that have a material impact on a shipper’s business, there is a requirement to solidify these relationships, to the benefit of both parties. These relationships must be managed and nurtured.
What do Shippers and Carriers Need to Do to Create a Strategic Partnership?
These are the key attributes make these alliances work.
- Trust
- Open and honest information sharing
- In depth understanding of each other’s needs and requirements
- Shipper partners receive priority access to equipment
- Carrier partners receive right of first refusal on loads that fit within their networks
- Contracts with COLA increases on an annual basis, or rate sheets with GRI rate increase discussions, so there is a commitment to make these partnerships work over a multi-year period.
Creating these types of partnerships takes time, commitment and effort. Quality committed carriers become an extension of the shipper’s company. They elevate the level of service a shipper’s customers receive. In our view. The results are worth the effort.
Summary
Bids work for shippers with multi-million-dollar freight spends that consistently allocate volumes to a list of qualified carriers. Bids work for carriers that receive consistent volumes of freight on their major traffic lanes. Bids work when both parties commit to a strategic relationship. For shippers that establish contractual multi-year relationships with their core carriers, a bid every 2 – 3 years works well.
A comprehensive, professional bid typically requires some level of work over a 3-to-5-month period. Working on a bid takes time away from the transportation management team’s normal day-today duties. It has been our experience that there are many benefits to this approach as there are with creating and maintaining the company’s other major business relationships. We encourage shippers, with significant freight volumes, to take advantage of the benefits that accrue from a well executed freight bid.
To stay up to date on Best Practices in Freight Management, follow me on X (formerly Twitter) @DanGoodwill and join the Freight Management Best Practices group on LinkedIn. If you are looking for ways to improve the effectiveness of your freight management processes or to save money on freight, contact me at dan@dantranscon.com.
