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New RFP landscape: Building strong contracts in 2022

Annual RFPs are dead, but shorter contracts offer opportunity for success

(Photo: Jim Allen/FreightWaves)

Shippers have long relied on Excel spreadsheets and emails to handle their freight procurement processes. When pandemic-fueled headwinds pushed historic amounts of freight into the spot market, however, many shippers found themselves running an unmanageable amount of seasonal bids to compensate for annual contract failures. 

From there, the traditional Excel spreadsheet and email system started to fall apart. 

“If you have 20 or 30 carriers, you don’t really need a robust system to run bids. You can kinda do it on Excel spreadsheets and email when you have that many carriers and brokers,” Emerge Founder and CEO Andrew Leto said. “When COVID happened, route guides started failing. You had to run more bids than ever, and you weren’t running annual bids. You were running seasonal bids.”

Before COVID, shippers could supplement a couple dozen carrier contracts with a handful of broker connections in order to access a wider network of trucks. Because this method had always worked in the past – and because there were few technological options – shippers were reluctant to embrace procurement technology. Now, however, they are beginning to see the need to run a continuous bid cycle. 

“Right now, no one in their right mind should run a year-long contract,” Leto said. “Some of the biggest shippers – who historically have run most of their freight on the annual bid – are now running three- to six-month contracts on that freight because they know rates are sky high right now, but they are moving downward dramatically. So, don’t go lock in an annual contract.”

The volatile nature of the freight market has encouraged some folks in the industry to become wary of contracts, instead preferring to place their trust in the spot market. While it is true that annual RFPs have largely run their course, Leto cautions against moving away from contracts in general.

“The annual RFP is dead, but running a bid and locking in your rates on a contract still makes sense. It’ll always make sense,” Leto said. “Running shorter bid cycles is the new way to do it. Now that there is technology out there like Emerge, running a better, faster bid cycle is the new norm.”

Emerge’s freight procurement platform does not just allow shippers to run more frequent bids, however. The platform is also outfitted with a benchmarking tool that help shippers determine the ideal contract length for each lane. For example, a three-month contract makes the most sense on a lane with rapidly dropping rates, while a 12-month contract extension may make the most sense on a more stagnant lane where a shipper is already paying under market rate. 

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Ashley Coker

Ashley is interested in everything that moves, especially trucks and planes. She covers air cargo, trucking and sponsored content. She studied journalism at Middle Tennessee State University and worked as an editor and reporter at two daily newspapers before joining FreightWaves. Ashley spends her free time at the dog park with her beagle, Ruth, or scouring the internet for last minute flight deals.