In the world of transportation and logistics, Request for Proposals (RFPs) play a significant role in shaping the relationships between shippers, carriers, and brokers. They are a crucial part of the process that helps businesses secure the right transportation services at the best possible rates. However, RFPs are not one-size-fits-all solutions, and the dynamics of the market are constantly evolving.
In today’s uncertain market, identifying and prioritizing value-added customers is crucial. These are customers who require specialized services or reliability that sets them apart. The COVID-19 pandemic triggered a wave of experimentation, and some of these changes are becoming permanent.
“There was so much experimentation during the pandemic, and some of that is sticking around,” says Chris Caplice, Senior Research Scientist at MIT and Chief Scientist at DAT Solutions. “No one wants to get locked into a really long contract right now, because it’s so uncertain.”
Shippers are avoiding long-term contracts, making it more challenging to secure long-term commitments. In the past, three-year service contracts were the norm, but they often included adjustment mechanisms. For example, 90-day or 180-day review periods allowed flexibility in addressing changing circumstances.
How do you prioritize value-added relationships in the complicated modern landscape for RFPs? Watch the latest episode of the Stay In Your Lane Podcast for key insights on this topic and more.
While many aspects affect the total delivery costs, it’s not always possible to effectively incorporate them all into an RFP. The focus is generally on rates, with specifications like two-hour load/unload times and exceptions. However, trying to account for all possible exceptions in an RFP can be daunting and may not yield a comprehensive picture of the future.
“Sophisticated shippers look at total delivery cost,” says industry veteran and Ege Avenue Associates President Joe Lombardo. “But I don’t think you can build all of the [necessary] segments into an RFP.”
Consistency in freight lanes is essential for both shippers and carriers. A significant percentage of lanes don’t see a substantial amount of variation from year to year. This consistency helps stabilize operations and reduce churn, which is something everyone in the industry aims for. However, the threshold for what constitutes a “consistent” lane can vary, with different perspectives between shippers and carriers.
“As the volume on a lane gets higher, the probability that it will repeat increases dramatically,” says Caplice. “The things that don’t repeat are the onesy-twosy lanes. As volume decreases, so does the probability that the lane shows up next year.”
One area that remains contentious is the topic of asset-based carriers and brokers. During the COVID-19 pandemic, many asset-based brokerages faced challenges when their pricing and agreements were based on asset-based models. As the market shifted and demand surged, their truck capacity was diverted to higher-paying freight, leading to issues like failed pickups and load coverage.
On the other hand, brokers can play a significant role in handling non-consistent lanes effectively. Their diverse supply base allows them to manage unpredictability and create sustainable solutions for shippers.
The transportation industry is characterized by its diverse mix of large and small carriers, with a significant portion of capacity concentrated in a few major players. This market structure contributes to the cyclical nature of the industry, as small carriers enter and exit the market, influencing supply and demand dynamics.
RFPs are an intricate part of today’s transportation market. The evolving landscape requires shippers, carriers, and brokers to adapt and seek out value-added relationships, prioritize consistency, and consider the broader picture of total delivery costs. While there may be differing viewpoints, the overarching goal remains the same: to navigate the complex transportation industry effectively and efficiently. For a 3PL partner that can help you find your way, trust the pros at Triple T Transport. Contact us today to learn more about our wide range of services.