For shippers who believe they waste too much time and spend too much money conducting annual requests for proposals (RFPs) for lane capacity, Convoy is giving them a new option.
The national digital freight network has rolled out Guaranteed Primary, a service that offers shippers the option to move all their loads on a given lane through the Convoy network without the need to submit to the RFP process.
“Convoy’s business is predominantly contract freight. As such, we typically go through substantial RFP processes throughout the year to win those contracts. For shippers who are interested in Guaranteed Primary, we eradicate that entire RFP or mini bid process,” Ryan Gavin, vice president of marketplace growth for Convoy, explained to FreightWaves.
Gavin said shippers who work with the company can allocate volume on any lane to Convoy, which works with the shipper to establish a fixed margin for the loads along that lane. This could reduce margins up to 50% for shippers over industry averages, he said.
“The price a shipper pays with Guaranteed Primary is based on Convoy’s predictive pricing models and the fixed margin rate agreed to with the customer,” he noted. “When transportation teams tender their freight (e.g., daily, every few days, weekly), Convoy instantly generates a price that predicts our costs to source the truck. Our pricing is based on machine learning models that get smarter with every shipment. And we take on the liability of our predictive costs being accurate, and competitive. When our cost predictions are off, we shoulder the financial burden, eliminating the need for any billing reconciliation.”
Convoy provides 100% tender acceptance on the lanes and offers shippers full transparency of the costs associated with moving those loads through monthly insights reports. The reports estimate any monthly savings when compared to what the shipper would have paid if the load were moved through the RFP process or even on the spot market.
“Because Convoy is a digital freight network, our business model is naturally aligned with our customers’ interests. The more efficiently we source capacity, the more we drive down shippers’ costs,” Gavin said.
A shipper is not locked into a contract and can cancel the service at any time.
In a Convoy blog post announcing the service, Gavin pointed out the realities that shippers face when it comes to contract rates.
“It’s no secret annual bids rarely work out as planned. In reality, the freight market is volatile, with booms and busts independent from the rest of the economy, making it very hard to predict. In fact, the freight industry experiences a major swing roughly every three to four years — twice as often as the overall economy,” he wrote in the blog.
Because of this, contract rates oftentimes don’t hold up — for either the shipper or carrier. FreightWaves market expert Seth Holm wrote about the volatility within contract rates earlier this year.
“Contractual rate agreements vary in length and are customized between shippers, brokers and carriers, but they tend to average three to six months in duration,” Holm wrote. “As trucking market volatility increases, contractual agreements tend to go through a rebidding process by either the shipper or the transportation provider depending on which way spot rates move.”
If spot rates move above contract rates, there is upward pressure on future contract rates, and the increasing likelihood that the carrier will reject the contracted load. If spot rates decline, shippers could be paying more to move those loads than they should. Since launching pilots of Guaranteed Primary in the summer of 2019, Gavin said Convoy has seen 100% primary tender acceptance rates in the program, which is now available on over 4,000 lanes.
“Convoy works with shippers to identify lanes we can service through the Guaranteed Primary program based on our ability to provide reliable and consistent supply at competitive rates,” he told FreightWaves. “We then use technology to ensure that we always have capacity available, even during periods of surging demand.”
Rates charged to the shipper will move with the market, Gavin said, but the agreed-upon margin never changes, and the capacity is guaranteed through Convoy’s network of 50,000 carriers and more than 300,000 trucks.
“The beauty here is that shippers are able to stay off the spot market entirely when prices surge [and margins can increase to 30% or more]. We are able to guarantee capacity because of the size and nationwide scale of our network,” Gavin said.
Dan Lewis, Convoy co-founder and CEO, said this approach to move away from the RFP process is a win for all shippers.
“There’s been minimal innovation to the traditional RFP process, and this perpetuating cycle of win or lose has yet to be broken. For years we’ve been seeing both sides struggle in increasingly frequent and volatile freight cycles,” Lewis said. “We’re excited to introduce a more effective solution where shippers get the best value in any market condition, and we keep our carriers driving. It’s a win-win.”
Gavin said that shippers using Guaranteed Primary will still benefit from all the other programs Convoy offers, including a traditional RFP process if the shipper prefers that method.
“Guaranteed Primary is a complement to our current pricing programs, meaning we will still do traditional RFPs, backup and spot for those customers that want to,” he said. “With Guaranteed Primary, shippers still get access to all of the benefits of our digital freight network including our automation, matching, quality and capacity capabilities and full visibility, which we share with shippers. We designed Guaranteed Primary so a shipper never has to use backup or spot, if they don’t want to.”