Logistics and Supply Chain Managers who aim to balance rising customer expectations with the realities of transportation costs know that the freight RFP contract is a crucial starting point for carrier selection and network strategy. Choosing the right carrier partners is a decision that has significant financial, transportation, delivery experience, and customer experience implications down the line. Moreover, the carrier you choose today can create a more reliable and compelling experience and keep them coming back.
Data Gathering: What You Need From Your Logistics Team
To create a successful freight RFP, it is necessary to first gather a wide range of information to accurately define and describe the needs of your shipments. This information should include packaging dimensions, photos of your packaging and product, your National Motor Freight Classifications (NMFC), and density calculations. In addition, your company’s story and background information should be put together for your RFP receivers so they can understand who your company is and where it is looking to go.
Once all this information is collected, you should use it to create at least one specific vision or objective that needs to be accomplished with the RFP and the operations that follow. Whoever is going to be receiving the RFP should know the details and expectations of your shipping needs and the background of your business in order to understand your requirements fully.
There also needs to be enough carrier specific information to personalize the RFP. Each carrier should be mentioned by name along with the specific services that the carrier provides that align with your needs. The more personalized each RFP is, the more likely a carrier will want to work with you, thus giving your company a stronger pool of carriers to choose from, as well as a stronger strategy to utilize later on. [See how Bodybuilding utilizes its carrier partners for cost savings and zone skipping.]
Minimizing Costs in Your Freight RFP Pricing Evaluation
Carriers will assign a price to your account by calculating your operating ratio (O/R) based on the information you provide in the RFP. An O/R is a comparison of a company’s operating expenses to their total revenue.
Knowing that, these are the factors that carriers consider to be operating expenses when calculating your transportation operating ratio:
Density And Dimensions
Pricing can fluctuate greatly because of density, which is the most important pricing variable. High density items will generally receive favorable rates because they maximize their packaging space, therefore letting the carrier maximize their shipping space. If you focus on proper packaging and usage of pallets, costs will be minimized.
Handling Procedures
Workers will eventually have to move your cargo and packaging materials around, and this process should be as easy and efficient as possible. If your cargo can be effectively transported using pallet jacks, hand trucks, a small team of workers, and a single LTL freight driver, then your price will be minimized. Elaborate handling operations are much more costly.
Stowability
If special arrangements need to be made to fit your cargo into a trailer due to awkward dimensions or protrusions in your packaging, you will be charged a premium for the shipment. These packages hold a greater probability of damaging other shipments or reducing capacity for the carrier. Minimizing these issues beforehand will result in savings.
Distance Of Haul
Carriers prefer shipping across short, regional distances. This is because shipping across long distances creates greater risk for the carrier, increases fuel and labor costs, and decreases truck availability. Requesting to ship across long distances results in higher prices. By making the total distance as short as possible, carriers will be more likely to accept the job and will lower the price.
Insurance And Liability
Typically, carriers are averse to absorbing the risk associated with transporting highly valuable cargo, or cargo that is susceptible to damage, theft, or other hazards. To avoid the issues associated with this, especially having your price negatively impacted, consider taking out your own insurance from a third-party provider. This way, your carrier will feel more comfortable, charge you less, and your cargo will remain safe.
Monthly Transportation Spend
If you routinely place high-volume orders each month with the same carrier, expect better pricing than if your shipments are sporadic. However, low volume orders could qualify for variable pricing from some carriers, which could also result in better prices.
Accessorials
The cost of additional services needs to be factored into the total cost of any shipment. An example is that shipping to residential areas will always have higher costs than shipping to a location like an industrial area with loading docks. This is due to the difficulties associated with the delivery process, such as the possible requirement of lift gates, so be sure to note any additional services you require.
Great Carrier-Shipper Partnerships Enable Better Business Decisions
As the market continues to fluctuate, it’s important to remember that you aren’t locked into using any particular carrier, strategy, or network design. Ultimately, understanding how carriers impact all areas of your business is extremely important to creating maximum value for your team, and is an important step to beginning Delivery Experience Management.
No matter how carrier capacity fluctuates or how complex your carrier network design, it’s important to remember that carriers are your partners. Given the right context, they can help manage your delivery experience. This can save you transportation costs and help engender confidence with your customers, especially if you encounter delivery exceptions.
Learn how carrier diversification can protect your business from the fluctuating last mile market and carrier capacity, or download our free freight RFP template.