How the Pandemic Impacted RFP Freight Bidding
With the freight market already off to a hot start in 2022, steady rates and stable capacity are as crucial as ever for both shippers and transportation providers. According to a study by Echo Logistics, only 32.1% of shippers said they plan to issue an RFP in 2022, a decision influenced mainly by high prices tipped in favor of carriers. Of the shippers who plan to utilize RFPs this year, almost half (46.5%) said they plan to move away from the traditional year-long RFP in favor of semiannual or quarterly RFPs throughout the year. Switching to a shorter freight period puts shippers in a better position to keep their transportation costs down while still ensuring reliable capacity.
This blog post looks at when to utilize spot or contract rates, the advantages, and what's involved in drafting an RFP from both a shipper and carrier standpoint. We also cover best practices for submitting a winning proposal.
What's the Difference Between Spot and Contract Rates?
Spot rates cover single shipments that are set through one-time price quotes. These rates are short-term and transactional, reflecting the real-time supply and demand of the truckload market. Contract rates, also known as bid rates or dedicated rates, are more stable and long-term; they are more difficult to obtain because they require shippers to commit to select carriers for a set period.
Contract rates are typically set through a bid, commonly referred to as a Request for Proposal (RFP) or Request for Quote (RFQ). By issuing an RFP, shippers project their forecasted shipping needs over a select period and invite transportation providers (typically carriers or 3PLs) to bid. These providers then calculate their potential costs and offer a proposal for their transportation services, including how much they would charge to tender out their business.
After the bid closes, the shipper or customer will evaluate all offers and award lanes to specific providers based on rate, service, and capacity.
What are the Benefits of Spot and Contract Rates?
When shippers rely on spot pricing, it's typically because their primary and backup carriers cannot cover a shipment. Additionally, spot pricing is best for shippers that do not have enough freight volume or consistency to justify hosting a bid.
There are many advantages to contract rates for shippers with steady, reliable freight. Knowing your freight volume and cost ahead of time allows for better budgeting and business forecasting throughout the year. It also ensures more reliable capacity. By awarding business to designated providers over time, shippers build stronger relationships within their network of carriers.
Transportation providers benefit from contract pricing as well. Being awarded business through a bid means carriers and 3PLs have secured a committed volume of loads. These agreements mean more predictable revenue, more consistent and efficient scheduling, and increased driver satisfaction.
How Does the Bidding Process Work?
Although there are no set minimums to host a bid, contract pricing is generally most cost-effective for larger businesses with upwards of $5 million or more in freight spend. If you decide to issue an RFP, you'll need to evaluate various factors, including how consistently you use a lane (or origin point) and how much load volume you have in each.
Historically, bids have primarily been held annually throughout Q4 and into Q1 as businesses project their transportation needs for the year. However, between the pandemic, market volatility, and seasonal/temporary opportunities, mini bids are becoming more commonplace. Quarterly RFPs allow shippers to get new rates from providers every three months rather than operating off a fixed rate for an entire year. Some mini bids even occur monthly, reflecting real-time market supply and demand. These shorter-term bids provide carriers competitive rates while offering shippers the benefits of contract pricing, including stable capacity and security.
For carriers and 3PLs seeking to secure business through RFPs, it's important to note that bid processes are different and vary per shipper. You may have multiple bids or multiple modes in one bid. Your customer may want you to price your services a certain way (e.g., a rate per mile or an all-in rate). You're typically going to see bids focusing on 150 lanes or more, and bigger RFPs can range up to 10,000 at a time. Smaller RFPs with 100-200 lanes typically only have one round, with lanes being awarded after the initial submissions. Larger bids will typically have at least two rounds in the bid process before lanes are awarded.
Carriers and 3PLs are generally familiar with the shipper and are invited to bid. When this happens, the customer sends the RFP directly to their contact at the company (e.g., a Business Development Manager or Account Manager at Armstrong). Many transportation providers have dedicated individuals or teams who manage data and assist in the bid process. Pricing analysts then get to work, pulling data points together and gathering as many details about the customer, lanes, and equipment as possible.
The majority of RFPs will give you a significant outline of what the expectations are. The fine print and details can make or break how successful you are in the bid process. Deadlines are extremely important and carriers or 3PLs that do not submit on time are typically eliminated from the bid process. On average, customers allow one to three weeks for you to prepare and submit your proposal; during this time, you'll need to scrutinize your pricing data and format the proposal based on the instructions provided.
Your Shipping Challenges Solved
Whether you have a sudden, unexpected shipment that needs transporting quickly or more long-term work than your team can handle, Armstrong is here to help. Request a quote through our website today, and we'll get to the bottom of your pain points.
About Jason McNinch
With nearly 22 years of experience in transportation, Jason serves as Armstrong’s Transportation Pricing Analyst. Jason has an integral role in determining competitive pricing strategies and providing accurate truckload market pricing for Armstrong’s customers. He is also responsible for handling requests for pricing/quotes (bids).