Great Opportunities for Contract Freight

Bid season is right around the corner, with many shippers issuing Requests for Proposals (RFPs) for the coming year. Given the sustained increase in spot market rates we’ve seen this year – the result of a capacity crunch that doesn’t appear to be waning anytime soon – we’re expecting contract rates to follow suit in Q1. So, how do you get in on the action?

First and foremost, networking: Buy mailing lists on industries that you’re well-equipped to serve, make phone calls, visit shippers’ offices. If you have only a few trucks, you may not have an opportunity to bid on a shipper’s RFP, but you may be able to use this process to secure regular work from freight brokers or 3PLs. And with the aforementioned capacity situation, the playing field has been leveled in a lot of ways. ATA Chief Economist Bob Costello told attendees at the ATA Management Conference and Exhibition in San Diego earlier this month that ATA members lost 3.5% capacity this year. That creates a unique opportunity in 2015 for getting on a shipper’s routing guide if you’re a smaller carrier who can provide trucks reliably.

Whenever a shipper issues an RFP, they’re likely looking to improve some facet of their current transportation solution, whether that’s capacity, performance, or costs. If you’ve made the effort to detail how you might provide that improvement, the good impression you’ve made could lead to future business with that shipper, even if you don’t win the bid. And since last winter is still fresh on everyone’s minds, a strong bid can get you remembered should we see bad weather again. (See “Win by Losing: How to Respond Effectively to a Shipper’s RFP” for more info on how a losing bid can still be a good thing.)

So say you do get to bid – will your price be too high? Are you leaving money on the table?

Your bid has three important tactical aspects: execution, pricing and margin.

1. Execution: A successful bid package includes more than just rates.

If your bid is well constructed and answers the customer’s needs precisely, you may win, even if your competitors offer lower rates. Most shippers understand that they are buying a professional service that is vital to their supply chain. You will need to explain how you can serve the customer’s specific needs, as defined in the RFP. Be sure to state all your assumptions — including your basis for calculating mileage, rates and surcharges — because RFPs can be a bit vague. If you are offered the opportunity to clarify aspects of your bid, check the RFP for guidelines and contact information.

2. Pricing: Get the rates right.

Start by pricing the lanes where you have a reliable source of capacity, then benchmark your pricing matrix against the prevailing rates in those lanes. You can use DAT RateView to analyze both the contract rates and the spot market “broker buy” rates for tens of thousands of lanes, all based on actual transactions rather than bids. And since shippers and carriers are often hesitant to share data with one another, being able to cite actual market rates will lend transparency to negotiations.

DAT RateView provides a 13-month rate history for any lane

For lanes that you don’t know well, look up a 13-month rate history that helps you to evaluate seasonality and volume in each lane, or download hundreds of rates at a time with a Multi-Lane Request to complete your bid worksheet. If your current business doesn’t dovetail well with the lanes represented in the bid, try to develop TriHauls (triangular routes with added profitability) or use other creative dispatch tactics to handle new lanes.

Submit a Multi-Lane Request to research all RFP lanes in one spreadsheet

3. Margin: Create a pro forma model to balance revenue and cost.

Now you need to understand the expected return on your bid. One of the best ways to do this is to create a “pro forma” model. This is basically a spreadsheet that tallies up your expected revenues and costs. (If you are not a whiz with spreadsheets, ask a co-worker or financial analyst to walk you through this process.) List the different loads in your bid, and multiply by the expected number of loads per year by the price per load (which is the rate per mile times the number of miles.) Remember to include fuel surcharges and accessorials, where applicable. The total of all those payments will be your revenue estimate.

Separately, add up all the costs needed to support that revenue: driver pay and benefits, truck payments, fuel costs, maintenance, etc. Don’t forget indirect costs or “overhead,” such as rent, electricity, and payroll in your office, parking lot, or other facility. (To prorate indirect costs, divide the total by the number of trucks in your fleet, and then multiply by the number of trucks used to satisfy this bid.)

Decision: Does the bid support your business goals?

Evaluate the results of your analysis. Is this customer important to you? Will this piece of business improve your profitability? Does it support your growth goals for next year?

While an RFP can offer you a great opportunity to develop your business, you may need to consider whether winning the bid will help or hurt your bottom line. Choose one of these three bidding strategies:

  1. Win the entire bid. If the shipper’s business is attractive and it fits into your existing business, then go for it!
  2. Win only a portion of the bid. Pricing for the entire bid may not be profitable for you, but you can bid on the lanes that dovetail best with your existing business.
  3. Lose the bid, but make a good showing. As stated before, a well constructed bid can be a good way to introduce yourself to a new customer or to build your relationship with an existing customer.

For more information on pricing and benchmarking tools in DAT RateView or if you would like help responding to an RFP, please contact our award-winning customer support team at 800.551.8847 or fill out and submit this information request form.