While annual RFPs are still considered an industry standard, shippers are becoming less enthralled with these yearlong commitments. Volatile freight markets — like those seen since the beginning of the coronavirus pandemic — highlight the risks of long contracts. At the same time, high-tech solutions designed to make the bid process cheaper, easier and quicker are entering the market.
The freight market has proved incredibly unstable over the past two years, with capacity constraints driving historic rate hikes for both contract and spot transactions. Many shippers are now looking to shorten the duration of their bid contracts to take advantage of current capacity and avoid being locked into sky-high rates as the market shifts.
“The last thing shippers want when publishing a new RFP is high tender rejections, forcing them into the spot market,” Emerge SVP of Enterprise Jake Papa said. “We’ve seen that shorter and more frequent events reduce this risk.”
While shorter RFPs do not guarantee lower contract rates, they do allow shippers to avoid being pushed into the spot market, where rates can be significantly higher. More frequent bid processes also allow shippers to maintain rates that are as close to real-time market offerings as possible, giving them the opportunity to take advantage of lower rates quickly as the market loosens.
Emerge enables shippers to take advantage of shorter RFPs through its freight procurement platform. The company does not, however, believe that these shorter contracts are the right answer for every shipper or every lane.
“Emerge does not suggest completely doing away with annual RFPs, but we do believe that certain lanes or lane groups are better suited for shorter cycles,” Papa said.
Shippers will likely find a lot of value in shorter contracts when it comes to difficult-to-cover lanes. These lanes typically come with high price tags, especially when pickup and delivery services are required in rural areas. By ensuring rates and capacity options reflect current market conditions, shippers stand the best chance of keeping these lanes covered and maximizing cost savings.
“We see difficult-to-cover lanes typically being a price issue rather than a capacity issue, especially if you look into difficult lanes around produce or peak holiday season,” Papa said. “Shorter-term, more realistic rates from capacity providers could be a solution for shipments that need consistency. This could also eliminate the need for a majority of those lanes hitting spot at 10%-plus rate increases.”
Papa noted that organizational changes like this have spooked shippers in the past because they don’t want to take on the risk of breaking their route guide. While this hesitancy is understandable, modern solutions like those offered by Emerge make taking risks and navigating changes safer than ever by maximizing potential benefits and minimizing potential threats.
“Technology platforms are empowering shippers to be much more flexible in their bid cycle than ever before,” Papa said. “Coupling this with available data sources around benchmarking and freight indexes to identify problematic lanes helps stabilize a shipper’s route guide. Change is always difficult, but we’ve seen a lot of success by rethinking the traditional annual model.” Click here to learn more about Emerge.