Increased freight demand, market volatility and supply chain disruptions over the past two years have created freight market imbalances that forced shippers to enter the spot market in droves.
Freight contracts resulting from annual RFP events or more frequent mini-bids have shorter lifespans, but RFPs remain alive – for good reasons. They give shippers, brokers and carriers what everyone wants: predictable, long-term contracts and volumes to stabilize business and develop balanced freight networks.
With another RFP season just around the corner, what are you doing now to prepare and make the most of the opportunities?
The winning bid is about more than price
When participating in an annual RFP or mini-bid event, success comes not just by submitting the lowest prices. In fact, that may be the worst thing to do. Shippers will typically stick with incumbent providers if bids are competitive or unrealistically priced. Shippers know the risks of replacing an incumbent may outweigh the rewards of getting a lower rate, especially when they have relationships with large, established carriers.
One factor that can give brokers an advantage is their carrier relationships. Shippers may already have confidence in a broker’s ability to leverage these relationships based on past experience showing the broker has the right mix of carriers in its network to honor rate commitments and provide service levels that are as good, if not better, than some of the larger carriers the shipper uses.
Before awarding contracts, shippers often utilize software tools for analyzing bids to determine the cost benefits of assigning lanes to different transportation providers. The analysis goes beyond pricing to consider on-time performance, historical tender acceptance and the ability of transportation providers to match inbound with outbound lanes for greater network efficiencies and environmental benefits.
These calculations can work in the favor of brokers. For starters, brokers can help shippers achieve a better mix of asset and non-asset providers in lanes where they have lower or less predictable volumes. Brokers can more easily flex capacity up or down in response to dynamic market conditions than asset-based carriers.
When brokers do not successfully “win” a bid, they can still benefit from participating in an RFP to showcase their breadth, depth and quality of services in certain lanes. Studies show that an RFP is considered to be a highly successful event if brokers win 8% of the lanes for which they submit pricing. But making a positive impression can potentially lead to future business, especially when shippers need someone on short notice to cover loads that fall through routing guides during periods of market turbulence.
RFP strategies for brokers
Before diving headlong into an RFP, it’s important to take inventory of your network and focus on the customers and lanes where you are most competitive in pricing and service. Brokers must be strategic but also stay realistic and honest when submitting bids to preserve their reputations as valued partners that shippers can turn to when they have present or future needs.
Here are a few rules of thumb to make the most of RFP opportunities with shippers, whether you have previously engaged with them or not.
Don’t bid on the entire RFP. Stick to your strengths and fight off the urge to bid on the entire RFP. Strategically place your bets in lanes where you can deliver. This will pay dividends by ensuring you are not stuck with lanes where you cannot honor price or service commitments for the full contract term.
Nothing gets brokers in trouble faster than overpromising and under-delivering. Besides, shippers will naturally be skeptical if a small or mid-size broker bids on their entire 500-lane RFP.
Carve out your niche. Building on the first point, shippers can tell from an RFP if you are confident in your ability to win their business in more difficult lanes. Being competitive in a highly desirable lane — like Atlanta to Chicago — is more difficult than establishing a footing in less desirable routes. Shippers typically have a harder time sourcing consistent asset-based capacity in lanes where they have lower freight volumes or land carriers in markets with lower rates.
This gives brokers an opportunity to leverage their carrier networks to provide capacity in lanes where asset-based carriers have less interest and where brokers can deliver consistently better service and lower costs.
Understand the market and price accurately. Bidding at price points that will win the business and grow your bottom line takes experience and freight intelligence. Brokers also have to understand the competition. Both require a fair amount of analysis.
To conduct a competitive analysis, you could search load boards to see what lanes your competitors have been bidding on. To analyze rates, brokers can use accurate freight forecasting tools like DAT’s Rateview and Ratecast, which have the benefit of using the broadest and deepest database of market data. The tools can ensure your bids are competitive and account for current and future market realities.
Winning a shipper’s business by submitting rates that make you unprofitable is worse than losing. The goal for a successful RFP is to win a predictable volume at prices that make it possible to sustain margins and drive growth.
Download our latest guide “Bid Boldly: The Broker’s Guide to RFPs” for more strategies on how to prepare for the upcoming RFP season and bid more confidently.