Got the RFP Blues?

Common RFP mistakes shippers and carriers make during the RFP process and how to prevent them.

Anyone who has ever put out a request for proposal (RFP) — or participated in one — quite frankly knows that they are very taxing. However, RFPs are very important and essentially define the relationship between a shipper and a carrier. Over the years, Chariot Logistics has seen every kind of bid imaginable, and we’ve learned that not all RFPs are created equal. Some are easy to manage and simplified while others are overcomplicated and unorganized. It’s important to remember that the integrity of your RFP is only as good as the data that is in it. Incorrect RFP data leads to tender rejections, paper rates, and loads going to the spot market. Here are some common mistakes shippers and carriers make during the RFP process.

Shippers

Overcomplicated RFP

It's very simple, the more complicated your RFP is, the harder it will be for carriers to navigate. This in turn can lead to having bad rates on file, which ultimately will bust your bid. Make your bid simple and easy to navigate so that it is easier for the carrier to understand, process, and respond to the RFP correctly. It’s easy for shippers to get caught up in the culture of their supply chain and hence have a bid that is optimized for internal assessment only. A good rule of thumb is to ask yourself this question: Would you be able to understand your RFP without explanation if you didn't work at your company? If the answer is no or unclear, chances are your RFP is too complicated. Most supply chains are very complicated with dynamic networks and the idea of simplifying your RFP sounds hard. Luckily, there are some great programs out there that can help shippers with more complicated networks streamline their RFP process. As a shipper, your goal is to get the best rate possible, so give your carriers the opportunity to focus on providing the most accurate rates, not figuring out your RFP.

Inaccurate Forecasts & Lane Data

This one goes hand in hand with over-complication. An RFP with incorrect lane data or freight volumes can greatly impact the effectiveness and strength of your routing guide. Mileage, shipping locations and projected quarterly or annual volumes are all defining variables in carrier pricing. If these items are incorrect, it can lead to bad pricing, tender rejections, and spot rates.  As a shipper, you are in complete control of the data that is in your RFP.  To have a successful RFP it is critical to make sure the lane data and forecast are as accurate as possible.

Contracting out lanes that shouldn’t be contracted out

All lanes are not created equal and not all lanes should be contracted out the same. Lane volumes, market seasonality, and customer demand can throw a wrench in how capacity is sourced. Lower volume lanes, or lanes with unprojected demand that are product driven, might be more effectively managed outside of an RFP to keep them from getting lost in the routing guide with paper rates submitted months ago. These include periodic mini bids, project awards or even spot coverage with your top performing carriers. RFPs are great for most freight, but it’s the one-offs, low volume lanes, and ad-hoc projects that become victim when bundled into the network bid.

Not adding new carrier to RFP

As a broker, Chariot Logistics hears this one a lot and honestly, we don’t understand why a company would take this stance, especially with the uncertainty and volatility of today's freight market. We’re not saying you need to set up every carrier that cold calls you, and we know that onboarding a new carrier can be a long, drawn-out process surrounded by red tape. However, the more carriers you have participating in your RFP, the more options you have. Generally, more options lead to better results. Learning more about a prospective carrier’s current offerings through a request for information (RFI) is a good way for shippers to vet a new carrier to see if they will be a good fit. Giving a new carrier a chance to participate in your RFP can lead to some great upsides in your RFP process and ultimately an increase to your network capacity. 

Replacing incumbents with lower rates

This is the dark side of adding new carriers to your network. It brings to mind the old adage of “If it ain’t broke, don’t fix it.” All too often shippers find themselves in a sticky situation when they replace an incumbent carrier with a new carrier. Changing carriers on a lane based solely on price can lead to some big capacity problems. Sometimes it is better to keep a lane with a carrier with a higher rate due to the nature of the lane being serviced. If the service is reliable and the relationship is good, you might have more to lose than the cost savings being offered by a new carrier. Remember, paper rates are real and you are only saving money if the new carrier actually picks up the freight.

Carriers

Bidding outside capacities and regions you don’t serve

All too often carriers will finally get added to the RFP they have been chasing only to botch the whole bid because they focused on bidding lanes outside of their current capacities and regions they serve. Carriers need to approach the RFP process with a focus on bidding the areas where they are currently moving freight with a carrier base they can rely on. Bidding outside capacities is what leads to paper rates, its easy-to-use market analysis and submit pricing based solely on third party data, it’s harder to actually submit real sustainable pricing that actually gets the loads moved. Carriers who bid outside of their actual capacities often find themselves not being awarded any freight or being awarded freight they can’t move and paying the price.

Bidding lanes to get them not to move them

It is easier for carriers to get caught up in the idea of being awarded as much freight as possible without actually considering their ability to actually move these loads. This concept, having been dubbed the dreaded paper rate, is the bane of every shipper’s existence and the quickest way to destroy a shipper's RFP and get kicked out of their network. Chariot Logistics trains team members to only quote loads at rates to actually move them, not to just get them. Sometimes we might not be the cheapest carrier, but the rates that we submit to our customers will be honored and we will move the load. That is why, as a carrier, it is important to submit pricing that you can actually honor or be willing to lose on. Nothing will sour a shipper/carrier relationship faster than paper rates.

Not understanding the commodity that you are shipping.

Just as all lanes are not created equal, not all shipping commodities are created equal as well.  Are you shipping food grade products, scrap or recyclables? Is the product palletized? Can you use reefers? Are there cultural or religious precautions on the product being shipped? All of these factors impact carrier capacity and can affect a carrier's ability to submit accurate pricing. Different commodities oftentimes command different rates and it is critical for a carrier to understand this before submitting any RFP pricing.

Lack of communication during bid process

This one seems really obvious, but you would be surprised at how often a lack of communication between the carrier and the shipper inhibits a successful RFP process. As a carrier, it is your responsibility to fully understand your customers RFP. Make them aware of it and communicate effectively to understand and correctly respond to the RFP. Carriers who fear they will appear incompetent or those who do not want to “bother” their customer will usually find out in the end that they should have just asked the questions that they had about the RFP.  The transportation industry is all about collaboration, and the ultimate goal of any RFP is to get the best pricing and real-life capacity available. If you don’t understand any aspect of the RFP, just ask. When it comes to RFPs, there are no stupid questions, only stupid rates rooted in a lack of communication.

We hope this blog helps you effectively navigate your next RFP process and avoid some of the common pitfalls that both shippers and carriers face. Stay tuned for next week’s blog where we discuss some of the technology platforms that shippers can use to help streamline their RFP process. 

If you are shipper and would like to add Chariot Logistics to your next RFP please email aschnitzer@chariotlog.com.