Kevin Zweier, our Vice President, Transportation, joined DAT Freight & Analytics’ Dr. Chris Caplice for a recent episode of the Freightvine. They discussed key procurement strategies shippers are using to deal with COVID-19 disruptions and which of those might remain in place when the pandemic is history.
COVID-19 interrupted the usual procurement schedules
“Well, I think the first thing that we saw was some of the usual calendars or schedules that people had for doing transportation procurement got thrown a bit out of whack,” Kevin began. “Shippers that would’ve normally gone to bid in the fall pushed back their schedules to go out later.”
It seems the most significant contributor to the change in these longstanding procurement habits was nothing more than dealing with the explosion of operations issues. As Kevin continued, “There were a lot of things happening, and the shippers’ collective hair was on fire, so some things just couldn’t be dealt with then.” “But in the end, there was a need to wait out some of the extreme volatility at the margin.” No one wanted to lock in pricing for an entire year at the very top of the market. Shippers in Q2 and Q3 2020 were just trying to push that decision out.
More shippers focused on securing capacity pre-bid
Another trend Kevin saw was many more pre-bids and pre-awards, where shippers would attempt to lock-in capacity before everything went out to bid. It’s a dynamic that’s often seen whenever market capacity gets tight. 2019 saw maybe 5 to 10% of a shipper’s network volume being likewise locked-in. In 2020 Kevin observed that number rise significantly, to as high as 20 to 30%. One customer had locked up 40% of their volume before they conducted their annual event.
“A lot was going on during the early days of the pandemic. Shippers’ collective hair was on fire, and some things just couldn’t be dealt with.”Kevin Zweier, Vice President, Transportation at Chainalytics
Is the annual RFP soon to be a thing of the past?
Chris brought up the high level of discussion about the tried-and-true annual RFP. Every time the transport market tightens up – as it has dramatically over the past year – the consensus seems to be that that the yearly RFP no longer makes sense. “The RFP is dead; long live the RFP,” Chris quipped. “What are your thoughts… are shippers going to get rid of these annual bids they do? Or, how are they going to change? Will they die?”
“Well, I definitely don’t think they’re gonna die,” Kevin answered. “I see far too many shipper organizations who desire stability — reducing variability and volatility — having some number around for planning a budget, and certainly the annual sourcing events feed into that budget process pretty well.” Kevin doesn’t see large shippers letting everything go to the spot market or into a variable-pricing-type model. There needs to be some way to budget for a significant portion of their network. “Short answer,” continued Kevin, “the annual bidding process is not going to die. But I think it is relevant for every shipper to be looking at what freight should be going through an annual sourcing process.”
If shippers want to keep some stability, they can’t put unstable lanes into an annual sourcing event and expect to maintain stable prices on infrequent or inconsistent freight volumes. “I think this is one of the areas where a lot of shippers are putting more effort – what are the right procurement strategies, the different portions – what should be in the annual bid and what should go to the spot market, “ Kevin concluded.
In the end, the pandemic will bring about some lasting changes
Chris wondered if, as the pandemic enters its second year, if there are developments the virus has brought about that are silver linings. Things that Kevin’s team or his clients are doing differently and should stick around post-COVID. Kevin had some ready answers.
Consultants like Chainalytics are not traveling as much as they would have in the past – no one is – so people have become accustomed to doing business over video conferencing, Zoom calls, and the like. The whole concept of web conferencing has been normalized. In terms of what that has done for freight procurement, it has made shippers more open to meeting and negotiating with more carriers. So, if during a normal pre-pandemic bid a shipper would have face-to-face meetings with five or ten carriers, now via Zoom, Google Meet, or GotoMeeting, that shipper is likely meeting with ten or twenty. That may not seem like a big difference, but it is building more strategic relationships with a broader selection of the available supply base. When we’re dealing with truckload transportation, that’s a good thing.
Another thing that should probably stick around for shippers is the realization that they just can’t start new transport provider relationships through a bid process. That carrier discovery and carrier management need to be an ongoing activity for all shippers. Sourcing teams will never award a significant amount of business to brand new carriers that no one in the organization knows very much about or has a relationship with. Carrier discovery has to be an ongoing activity for every shipper.
Listen to the entire Freightvine podcast episode here.
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