Why Annual RFPS are Out and Quarterly RFPs Are In
Your annual RFP is old news…
That’s right, the staple sourcing tool of shippers for the last 25 years is out.
It’s being updated and replaced… and for good reason.
Traditionally, RFP’s have been an annual process that has allowed shippers to weed out poor performers, award lanes to trusted incumbents, reduce shipping costs and above all, improve their entire logistics operations.
But in recent years… we’ve seen a major shift in how shippers are approaching their bids.
What was once an annual process has now become a quarterly… and in some cases even a monthly process.
Welcome to the era of dynamic bidding.
Shippers are now packaging their bids in shorter “dynamic” cycles to take advantage of the best market conditions.
So, what’s driving this trend?
Recent history gives us three good reasons:
The number one reason behind the change is sheer volatility. Shippers have been forced to find a better model. Kicking off in 2017 and running through 2020, annual rates have been losers. Volatility ran havoc over the freight market in 2017 with the triple hurricane capacity crunch that lead to many carriers abandoning contracts for better spot rates. The annual RFP model didn’t make sense again in 2019 when shippers who were locked into contracted rates were missing out on 20% lower spot rates all year. And in 2020, we saw a market high and market low all within 90 days. In 2020, it’s been difficult to price a lane for 2 days… let alone 12 months.
The second reason driving dynamic bidding is data. The freight tech explosion is real. Shippers are now armed with better online tools and market data and can better understand capacity, volumes, and fluctuations in the market that they’d never had access to prior to 2018. And now that shippers have better data and tools, they can better manage the partner ecosystem.
3. Performance Visibility
The third reason driving dynamic bidding is performance visibility. Online tools have also given shippers better visibility into performance metrics across the supply chain. Shippers want to know which partners are giving them what they paid for. And now they have the tools to take a more agile approach to their RFPs and evaluate performance on a more timely basis.
By evaluating carrier KPIs more frequently, shippers are able to build real accountability with their partners. Which partners are delivering on time? Which respect invoice timeliness? Shorter-term RFPs help shippers find the answers to these questions sooner rather than later. In finding the answers to these questions, shippers have two options:
1. Build better rapport with current carriers to improve performance metrics
2. Expand the carrier network by rotating top performers in and the laggards out
Regardless of the route taken, shorter term RFPs give shippers the opportunity to prune the best relationships and performers.
Your annual RFP is yesterday’s news. Shippers are replacing the annual model with quarterly and monthly dynamic bids.
This trend is driven by the market volatility and the shelf life of contracted rates; better data to take advantage of market swings; and new performance tools to evaluate carrier performance.
Of course, the end game here is what we’re all looking for… increased service performance, stronger vendor relationships, and the best market pricing.
Planning your next RFP?
Planning an RFP is not an easy job… even if the process is more streamlined with the help of data.
Do it right… and you’ll be able to reliably manage your freight with confidence. Do it wrong… and you’re in for a steady diet of uncertainty and sleepless nights.
That’s why we put together The Ultimate RFP Checklist for Shippers. It comes stacked with the 13 critical components of every RFP, the 8 characteristics needed for an accurate quote, the step-by-step guide to executing your RFP and so much more.
In short, it’s your blueprint to building a world-class RFP. Get your copy today.
Of course, if you need help moving freight across North America, reach out. Our network of 54,000 carriers and 400,000 trucks is a great asset to any shipper… and our service levels are impeccable. Give us a try… Get a quote today!