With the soaring cost of fuel, freight transportation costs are increasing at an alarming rate. Shippers are searching for ways to mitigate the high cost of freight. A freight bid is an excellent tool to achieve cost reductions in shipping costs. Over the years I have seen many shippers secure significant cost reductions through the successful execution of a freight bid. However, as I speak with shippers, I find that in some cases their experience with freight FRQ’s has been disappointing. Here are a few questions to ask yourself to ensure your company derives the maximum benefit from a freight bid.
When was the last time your company conducted a formal freight bid?
For companies that have not conducted a freight transportation RFQ in a number of years, the odds of success are high. The more frequently you conduct a bid, the lower the percentage of savings that can be obtained.
What are your expectations from the bid?
In some cases, shippers are disappointed in the results because of unrealistic expectations. It is beneficial to benchmark your freight costs against those offered by other carriers. This will provide you with a more realistic cost savings projection. Benchmark data can be obtained from a benchmarking service or by requesting sample rates from specific carriers.
How many modes and carriers are in the bid?
Over a period of years shippers form relationships with a group of core carriers and they become accustomed to using specific modes of transport. When conducting a freight bid, it is a great time to reassess the cost / benefit proposition of alternate modes and to give some new carriers a look. While rail freight line haul costs may be higher than truck on a per ton basis, their fuel surcharges may be lower, thereby reducing the total cost of shipping rail. New carriers may need your freight to fill certain backhaul lanes. They may be able to offer better pricing on specific lanes than your incumbent carriers. By limiting the number of modes and carriers in a bid, you may be limiting your potential cost savings.
Is your company leveraging its inbound and outbound freight?
Are you able to create round trips and continuous moves? Are you leveraging your inbound and outbound freight to capture the maximum cost savings possible?
How many rounds of bidding will take place?
Through multiple rounds of bidding, you are able to gain a better understanding of the needs of your carriers and are in a better position to leverage your freight. As you learn more about your carriers’ capacities and lane requirements, you are better able to achieve additional cost savings.
How much capacity will the carriers commit to your company?
There is no point in conducting a bid and creating a routing guide, only to find out that some of your carriers cannot handle your volume on certain lanes. This can result in an unrealistic estimate of cost savings. In order to conduct a successful bid exercise, it is essential that you match rates to volumes and carrier capacities.
What controls can I put in place to ensure the designated modes are used to the degree specified in the bid?
How often does your company need to expedite freight to offset a slowdown in production or unusual customer demands? Are these shipments reflected in your freight spend and cost savings projections?
What controls can I put in place to ensure the successful bid carriers receive / accept their designated bid awards?
Are there controls in place to identify non-compliance with the routing guide (e.g. tendering freight to carriers that either rank low in the routing guide or are not in the routing guide)? Non compliant behaviour will result in “maverick spend” that will negatively impact on cost savings. Do you have a method of identifying load refusals? This will allow you to take corrective action with your core carriers in order to limit cost overruns?
Does your company have the tools and resources to conduct a bid internally?
A bid can be a large undertaking that requires a combination of transportation knowledge, bid software functionality, negotiating skills and an intensive effort over a short period of time. Do your scare transportation management resources have the time to do this or are you better off outsourcing this to a bid specialist? The ROI of working with a bid specialist can make this a very attractive business investment.
For those of you contemplating conducting a freight bid, it is worth taking the time to answer the questions above as honestly as possible. This will maximize the potential cost savings your company can achieve.