Why Freight Bids Fail

Most logistics professionals who have been in the industry for a couple years have likely been part of freight bid. Unfortunately, most have also been part of an unsuccessful bid. Many shippers have experienced a bid process that didn’t yield any savings. Many brokers have been awarded lanes but do not end up seeing any of the predicted volume. Many carriers have started moving freight on an awarded lane only to find out there are additional challenges not communicated during the bid process. So why do logistics bid processes often fail?

Traditional Procurement Processes Don't Work for Logistics

Many companies try to apply a traditional procurement process to a logistics bid but that often does not work. Why?

In a traditional procurement process, you can take an existing item such as a widget and assign quantifiable pieces of data to it such as length, width, height, testing standards, material, weight, functionality, horsepower, amps, etc. Then when comparing additional features outside of the core product, those are usually also quantifiable (free shipping, recyclable packaging, etc). In a traditional standard procurement process, relationships and customer service are usually a secondary piece of the puzzle. 

The world of transportation and logistics procurement breaks all the rules of traditional procurement. There are a lot of factors in transportation and logistics that are not quantifiable. The reason these factors aren’t quantifiable is because most shippers typically lack the technology or processes to easily measure these factors. Example - a carrier can provide a low rate on a lane but then constantly fail to provide coverage but a shipper may not be able to measure the failures so that data point becomes subjective. When there is a lot of subjective data in the process, it makes the traditional procurement strategies not as applicable. 

Traditional procurement models may work for large shippers and large carriers but most freight is made up of small-mid size shippers and moved by smaller trucking companies and owner operators. 

Relationships Move Freight

We’ve all heard this saying time and time again but what does it mean? Many shippers have unique businesses and rely on carriers and logistics brokers who know and understand their business. This is why relationships play a major part in transportation and logistics. The carrier / logistics company is often coordinating deliveries directly with the shipper’s customers and essentially acting as an extension to the shippers’ customer service department. It is often difficult to measure these types of value added factors / relationships which is another reason why freight bids often fail. 

Shippers often wear multiple hats so they want to give freight to someone that can trust so they can focus on the rest of their job. Shipper’s want to know what’s going on but should trust the freight company to filter issues and handle stuff on their own. This is only possible when the freight company knows the business. 

Specialized and Regionalized 

Many shippers move specialized and regionalized freight. Putting specialized or regionalized freight out to bid often leads to national carriers bidding on lanes that they know nothing about. A successful bid process needs to segment anything that is specialized (high touch, unique equipment, multi-pick, no lead time, customer facing driver) and anything that operates regionally with a small carrier pool. 

Market Conditions 

The ever changing world of logistics makes it difficult for bids to be successful long term. Carriers typically only want to lock in long term rates if they have a volume commitment from shipper. This may be possible for large carriers and large shippers with thousands of loads on a single lane. In reality, most shippers do not have consistent high volume lanes and most carriers do not have the ability to lock in long term rates. So most bids last as long as the market is stable. 

Low-Ball Brokers

Another reason bids fail is inexperienced brokers who may not be familiar with the business providing low-ball bids to get their foot in the door. It’s a sales strategy that many brokers deploy - do anything to get some freight, gradually increase rates over time as relationships grow. The problem with this in a bid process is if the low ball rates end up getting volume awarded to them and they fail to provide capacity, the shipper is back at square one. 

Multi-Mode Bids

An error that many procurement professionals make is trying to put a bid out to market that includes multiple modes. The most successful bids align the lane equipment type with vendors who are specialize in that mode. If you are buying a new refrigerator, you aren’t going to call the car dealership. So, if you are moving freight via flatbed, you shouldn’t call an LTL carrier. 

What Should Shippers Do?

Whether you are a logistics company, a shipper, or a procurement professional, understanding that logistics decisions made by the most successful logistics professionals are often more of an art than a science is key. Rates increase, rates decrease. When shippers and logistics companies work together as a partnership and not as a one way transactional type relationship, the increases and decreases tend to stabilize over time and the on time service / customer service, while often times subjective, tends to increase over time.

Before going out to bid as the first approach to try to save money, look at other cost savings strategies such as switching modes, combining LTL’s, re-organizing your network etc. (check out our "Logistics Cost Savings Strategies" blog)

But, bids can be useful cost savings tools if done right. Here are some key tips to ensure a successful bid. 

Shippers / Procurement Professionals 

              1.           Do not take a cookie cutter approach. Break out mode, region, etc. 

              2.           Listen to those who are on the front line handling freight. Often times, the insights are key and should not be dismissed. Make sure they are part of the solution. 

              3.           Do not set a savings target until bids are reviewed and the data is scrubbed. Many share savings targets too early in the process then are constantly trying to create savings where they do not exist. 

              4.           Attempt to assign a value or measure to as many seemingly subjective things as possible so the decision becomes more than about just the rate. 

              5.           Ensure apples to apples comparison of data (same rate structure, same FSC, same timeframe, same capacity on equipment, etc). 

              6.           Give kudos when no savings are identified. That means the team is already a doing good job. Too often, the work already done is dismissed.

Carriers / Brokers 

              1.           Respond promptly to any RFI 

              2.           Ask questions. Then ask more questions. 

              3.           Only provide rates on what you have experience / capacity doing. 

              4.           Provide accurate rates, do not lowball 

              5.           If you don’t get volume from a bid, don’t write that customer off. Keep building the relationship. 

Contact info@on-llc.com if you need help with managing your freight bid process.