Selecting the right mix of carriers is a critical step in the execution of every freight bid. Creating a critical mass of carriers, in terms of quantity and quality, has several benefits. First, it ensures that the shipper is engaging with companies that can become strong business partners at the end of the process; these companies can effectively serve the shipper’s core lanes and transport their full volumes. Second, it makes the exercise competitive, so at the end of the bid, the shipper derives the maximum value from this large business expense.
The Selection Criteria
The number of carriers selected for a bid should relate directly to the size and scope of the business. It has been our experience that some shippers do not have the time or energy to compile a comprehensive list. There are some manufacturers and distributors that simply do not know many of the industry players. They go back to the same set of carriers for each bid. That limits the value of the process and can result in higher than necessary freight expenses.
Each shipper should begin the carrier search process by answering these questions.
- Is my company currently using the most appropriate modes of transport?
- Do I have enough carriers to meet the full range of transportation needs of our company?
- What is the incentive for a carrier to participate in our bid?
- Will each carrier in the bid have a fair chance at securing business from my company?
- How many carriers are needed to serve our business?
Here are a few thoughts on each of these questions.
Most businesses change over time. New markets, new customers, lost customers, changing volumes and shifts in purchasing behavior can drive modifications in carrier requirements. A shipper may reach a point where it needs to look beyond its current portfolio of small parcel, LTL and truckload carriers. If your company receives products from, or ships to destinations that are hundreds of miles away, consider inviting some Intermodal Marketing Companies (IMCs) that compete on these lanes. Also consider inviting some freight brokers that may be able to find trucking companies that serve remote or low volume lanes.
Over the years I have heard shippers make comments about a certain carrier with whom they had claims or service issues 10 or more years ago. Companies change, management teams change. Carriers with consistent problems lose market share and/or go out of business. Consider giving an opportunity to carriers that have not been considered in recent years.
The number of carriers invited to a bid must match with the company’s volume of business, service requirements, customer locations, and the requirement for refrigerated or heated service. Inviting fifty carriers to a $5 million bid would be overkill; inviting twenty carriers to a $80 million bid would be inadequate. Look to the “major players” to serve large geographical areas, but include regional or local carriers and/or freight brokers that serve smaller or more remote locations.
Shippers need to understand that trucking companies are going to assign their precious pricing resources to respond to a bid. They cannot afford to allocate these resources to accounts that are not a fit for their business or where the likelihood of success is limited.
While your incumbent carriers are familiar with your business, potential new suppliers need information upon which to base their decision to participate. Keep in mind that to attract potential new carriers, shippers must supply at least a detailed business overview, to “sell” potential prospects on the potential value of your shipments.
Carriers that participate in a shipper’s bid process, year after year, with no success, may become skeptical, particularly if the same carriers are always awarded business. Shippers need to communicate at the beginning, and throughout the bid, that the process is a fair and open. “Actions speak louder than words.” Neither side wins if carriers make a token response to a bid. Shippers also need to be realistic about how they should leverage their volumes and how many carriers they can manage effectively.
How and Where to Find Prospects
There are several sources available to shippers to facilitate their recruiting process. They include:
- Traffic clubs
- Attendance at industry events
- Examining Trucking Associations membership lists
- Participation in Trade Association meetings
- Google searches
If this task is too time consuming or arduous, a shipper can lean on a consulting company partner to do this work. Many of us that have done these projects over the years; we maintain lists from previous assignments.
Purify the List
As the list comes together, the shipper should take two steps to refine it. First the company should send out a Non-Disclosure Agreement to ensure that each carrier participant commits to keeping the information confidential. Second, the shipper should send out a questionnaire to capture a full profile of each bidder. I will outline the components of a carrier questionnaire in the next blog.
Keep in mind that some companies will refuse to sign an NDA or submit a completed questionnaire, or both. This will reduce the list to those companies that are genuinely interested in your business. The list will shrink again as carriers look at the lanes and volumes; some carriers will decide that they are not a fit for their business model. This reinforces the need to do the required due diligence so you can start the project with a robust list.
