Transportation procurement and budget management remain difficult tasks, particularly after a year involving some of the highest freight rates in recent memory.
Even though truckload rates appear to be stabilizing, many shippers are still nervous going into their bid events after last year’s spike. With that in mind, we recently co-hosted an event with our partner Coupa to discuss various strategies for successful transportation management, and I’d like to share some of the more interesting inquiries we received during the Q&A session.
One question I get every time I meet with transportation procurement specialists is “When is the ideal time to go to bid?” I know a lot of shippers aim to wrap up their bids in the fourth or first quarter of every year, but in truth, that’s usually due to the organization’s budget timing. I also know a few shippers conduct their bid during “off season” periods hoping to receive some additional attention from carriers. This is a really drawn out way for me to say: There is no ideal time other than the one that works best for your organization. The simple fact is that timing your bid proves less important than how you manage it once it’s complete.
Another interesting question I received during the event requested my thoughts on adding fees and penalties incurred by missed OTIF mandates to carriers. Now, I know a lot of manufacturers face penalties — sometimes up to 3% of the order — when the order doesn’t arrive within the desired window. Shippers in turn have wanted to write penalties into their contracts with transport providers. However, since most shippers are unable to commit to a minimum quantity of loads, and a penalty occurs for not meeting that minimum, carriers often balk. So, with no real binding factor associated with freight contracts to speak of, applying fines to your carriers for late shipments will ultimately result in a higher percentage of rejected tenders, forcing you deeper into your routing guide or to the spot market.
Finally, one of the attendees asked about the benefits of “lane packaging and bundling” as a way to save on rates. While the concept sounds great in theory, we rarely see many carriers who are willing to offer these incentives during negotiations. Now that doesn’t mean you shouldn’t present it as an option during the RFP process, but don’t be surprised if you don’t have a big response. If you do receive some offers regarding packaged or bundled lanes, you should carefully evaluate how this will actually work within your network to determine if it’s truly possible. It may require you to invest time with individual carriers to re-frame those packages as they often conflict with other awarding strategies you may be employing.
I certainly enjoyed discussing these freight challenges with some of the largest shippers in North America. And look forward to similar discussions in the future. In the meantime, if you have any transportation procurement questions, be sure to contact us to see how we can help!
Kevin Zweier is Vice President of the Transportation competency at Chainalytics. In this role, he manages the delivery of projects related to transportation procurement, fleet modeling, and systems and operational assessments.
