How to Write a Great RFP
Is it time to negotiate new carrier contracts? Here are the keys to successfully optimizing the Request for Proposal (RFP) process—from building a relationship with carriers to adapting to conditions as they change.
Shippers, know thyselves.That is the core message to shippers preparing to engage in the Request for Proposal (RFP) process with carriers. A shipper’s instinct can be to look out at the vast landscape of carriers without gazing inward first, but they cannot afford to skip the critical initial step of thoroughly understanding their own profile before negotiating a transportation contract with a carrier.
“That understanding comes from knowing your data,” says Micheal McDonagh, president of parcel for Louisiana-based third-party logistics provider AFS Logistics. “Be able to answer questions about your zones, packaging, weights, customers, destinations, and more.”
The RFP process is a crucial one for shippers and can set the stage for supply chain success. Shippers who approach the process by prioritizing planning, transparency, and communication are most likely to achieve results. Scope of services, terms, service levels, and performance metrics can all flow into place through a diligent process built on a proper foundation.
Despite the importance of RFPs, shippers do not always put in sufficient time to plan beforehand.
“Not sitting down and planning your strategy for the year is a big mistake,” McDonagh says. “Are you changing products? Are you growing? Where’s your volume going? Is your profile as a shipper changing? You also need to have those conversations and strategic planning sessions far enough in advance of an RFP so you know what is acceptable to negotiate based on your business needs.”
A successful RFP conveys all information that would impact pricing, such as specialized transportation requirements, equipment types, and seasonality.
Here are other steps to optimize the RFP process.
Build relationships with carriers. An effective RFP targets carriers who are the best possible fit rather than casting a too-wide net. For that reason, shippers need to know not just themselves but also have a clear understanding of the capabilities and limitations of each potential provider.
“Relationships, new or longstanding, are key,” says Sean Burke, chief commercial officer for Echo Global Logistics, a Chicago-based provider of technology-enabled transportation and supply chain management services.
Shippers can save time by being selective in the carriers they engage in an RFP. “Carriers have certain types of freight they’re not interested in, whether it’s the lane profile, mix, geography, or another factor,” notes Kevin Day, president of LTL for AFS Logistics.
“For example, a carrier may decide that handling large grocery or retail customers is not right for them, making any of that freight a nonstarter,” he explains. “Shippers can streamline their process by filtering out carriers who don’t fit upfront. This comes with the bonus of being better for carriers—even if the business isn’t right for them at face value, it still costs them time and money to process the RFP.”
Shippers that build a relationship with carriers will have a higher acceptance rate in their lanes.
“Also make sure to have a mix of asset providers and brokers in your freight awards,” says Tim Langfield, senior vice president, sales and business development, for MVP Logistics, a 3PL based in Minneapolis.
“Asset carriers do a great job of consistent lanes and volumes while brokers can tap into available capacity that you may not have known about,” he says. “They also are always good to work on last-minute loads or changes.”
An effective RFP emphasizes transparency with carriers as part of relationship-building.
“It’s also important to guarantee fair treatment of carriers throughout the bidding process, offering sufficient time and being trustworthy regarding realistic volume estimates and service requirements,” says Mike Weaver, vice president of sales for DAT Freight & Analytics, a freight exchange service and provider of transportation information based in Oregon.
“The speed of decision-making and implementation is a key factor for the overall effectiveness of the RFP,” he notes.
When shippers are transparent with their expectations and level setting they can get on the same page with carriers.
“It’s also important to understand what’s ‘normal’ or standard practice for LTL carriers so that shippers know what service expectations to flag,” Day says.
“For example, if a shipper says they want their freight picked up by 10 a.m. or they need weekend pickups and deliveries, live load, drop trailer, or other service requirements, they may be outside of normal practice for carriers,” he says.
Identifying these considerations early can help focus the conversation on what’s important for shippers and manage expectations upfront about feasibility and cost.
“You need to define the operational aspects that a shipper wants compared to a carrier’s standard offering, and address the gap in between,” Day adds.
Create comprehensive, accessible RFPs and bolster them with discussions. Burke recommends that shippers use technology or third parties to host their RFPs. The documents are too important to leave to someone unseasoned.
“You need someone experienced, who knows the ins and outs of each mode and what carriers look for,” McDonagh says. “There’s too much money on the line to leave it up to just anyone—it shouldn’t be their first rodeo.
“You need someone with a full perspective, not just someone in finance who knows numbers or someone who knows only logistics,” he says. “Creating an RFP is one of your biggest line items and leaving it to an amateur can cost you a lot of money.”
“Not planning your strategy for the year is a big mistake. You need to have those conversations and planning sessions far enough in advance of an RFP so you know what is acceptable to negotiate based on
your business needs.”
—Micheal McDonagh, President of Parcel, AFS Logistics
Meetings can strengthen the RFP process. “Having a group kickoff meeting for an RFP is good—however expanding that and having an individual kickoff meeting for what you would like the team to work on or focus on is better,” Langfield says.
Shippers should be flexible with changes to allow for a mutually beneficial contract and legal teams for both parties should be available for questions and negotiation.
“Often shippers evaluate willingness to sign an agreement versus evaluating the ability to live up to the commitment, creating an uneven playing field in contract terms,” Burke says. “Legal teams should work with finance to confirm an RFP participant can meet obligations, such as the ability to pay. Or if they are asset based, they have the fleet size to support the freight award.”
There is only so much that you can convey in an RFP document.
“I suggest shippers have a conversation where they can convey what’s important in the RFP,” Day says. “That discussion enables two-way dialogue between shipper and carrier, whereas an RFP document by itself can be a one-way communication.
“I would also advise shippers to provide the most accurate, complete data they can, as that facilitates a carrier’s best possible offer,” he adds. “When carriers see information is missing, they may take a conservative approach with what they offer. They may even decline the opportunity.”
Define the scope of services. Shippers should clearly outline the services to be provided and define the roles and responsibilities of all parties, while also establishing measurable performance metrics and service level agreements. The scope of services should also align with the overall goals and objectives of the RFP.
“I’d advise shippers to provide the most accurate, complete data they can during the RFP process, as that facilitates a carrier’s best possible offer.”
—Kevin Day, President of LTL, AFS Logistics
Shippers will want to strike a balance between how much information they provide and request in the RFP process.
“Avoid providing too little information, such as lanes without any volume estimates, but also refrain from overwhelming carriers with excessive details, such as massive amounts of highly granular data on past history and lengthy paragraphs on company vision,” Weaver recommends.
In addition, be careful not to game volume estimates, “where instead of presenting actual low volumes, there is a tendency to round up to one shipment per week or more,” Weaver says.
Accurate lane information and data, and all information that would impact pricing—seasonality, equipment types, special requirements—are among the essential components of an RFP. Shippers and providers should have a clear understanding of the priority between service and cost savings.
Shippers should provide any additional documents related to locations and hours of service, shipping days, and volume estimates.
In addition to providing the basics—such as lanes, routes, and volumes—Langfield adds that shipper/receiver characteristics such as hours, appointments required, driver work needed, scorecards, and payment terms, can all have a large impact on price and attractiveness to a certain carrier.
Langfield recommends shippers incorporate live shipping data to give carriers an idea of the frequency, consistency, and capacity needed when compiling lanes and putting together routes. Not providing an accurate picture of lanes and routes is a common mistake.
“For example, if you bid a lane from Atlanta to Minneapolis year round, and it is 100 loads per year, carriers can presume around two loads per week,” Langfield says. “However, if that volume falls within a three-month period or a seasonal capacity crunch time—for instance a produce time—it can impact not only the service levels that you can get when it comes to acceptance of the loads but also how the carrier rates it.”
Set the terms. Terms, service levels, and performance metrics “should be clearly set and understood by all parties prior to engaging in any pricing exercises,” Burke says. “They should be fair and measurable and have reporting capabilities to share between parties that are consistent across all providers.”
It is essential to be truthful and transparent. “When it comes to setting terms, service levels, and performance metrics, maintain transparency, clarity, and consistency in what is being measured and how it will be assessed,” Weaver says.
“Establish clear processes for handling disagreements or discrepancies in the future,” he recommends. “Finally, follow through on the defined terms and agreements.”
Payment terms, particularly as they relate to late fees, are an especially important element in parcel freight shipping.
“In the past five to six years, carriers have shortened payment terms and the late payment fee is now 8%, up from the 6% it used to be,” McDonagh says. “You might be able to negotiate some savings, but if you’re hit by a late fee because you can’t turn payment around fast enough, that nullifies that benefit. Late fees can kill your negotiated savings.”
Choose a timeline, then evaluate and adapt. A fair bidding process means that carriers have sufficient time to respond to an RFP. Weaver recommends a minimum duration of two weeks.
In addition, limit the number of bidding rounds to no more than two or three. More rounds than that “can be a significant waste of time for all parties involved,” Weaver says.
An efficient analysis and assignment of carriers to lanes ideally would be completed within one month. Delays of four to five months can undermine effectiveness.
A common mistake that shippers make is not providing enough time for carriers to develop a strategy to respond to an RFP. They also sometimes fail to provide between-round feedback with targets.
Shippers should avoid waiting too close to the expiration of a current contract to engage carriers. For parcel shipping, the lead time should be particularly long.
“Especially on the parcel side, if the contract is up in 3-4 weeks, you have to just extend at that point,” McDonagh says. “Parcel agreements are typically three years long, so give yourself plenty of time before the contract expires to negotiate. I’d recommend a ballpark figure of about six months out.”
“That guidance is shorter for LTL though, both in terms of contract length—typically one year long—and lead time—seven to eight weeks prior to expiration,” Day adds.
Defining terms, service levels, and performance metrics is only the beginning.
“You need to periodically evaluate performance against those terms and then define what each party can do to improve,” Day says.
Burke recommends a regular review of terms, scope of services, and performance to ensure they remain relevant and effective. Conditions can change. Burke says shippers should be open to renegotiating terms and conditions depending on changes to the business, market, client or provider needs.
“Transparency and communication go a long way to ensure a successful RFP for all parties involved,” Burke says.
RFPs are not about winning or losing, but about shippers and carriers enjoying a thriving relationship.
“The only way a negotiation works,” Langfield says, “is if both parties come out feeling they won.”
For parcel shipping, the RFP lead time should be particularly long. Parcel agreements are typically three years long, so shippers need to allow plenty of time to negotiate before the contract expires.
Top 5 Mistakes in Transportation RFPs
Shippers can mitigate risk and successfully manage capacity needs by avoiding these common pitfalls.
By Dave Halsema, Principal Owner, DH Logistics Consulting
1. Unclear Carrier Strategy
Instead of sending every lane to bid or rolling every lane over to incumbent carriers, use the 80/20 rule—focus on the 20% of lanes that account for 80% of your volume—to identify the high-priority lanes where additional flexibility will improve cost and service the most.
During the pre-selection process, pinpoint carriers that fit your unique requirements, then use online databases to streamline the manual request-for-information process.
In addition to lane and volume requirements, qualify carriers by considering variables like equipment types, terminal locations, SmartWay certification, load board activity, driver staffing, and more.
2. Limited Carrier Mix
Economies of scale do not apply to transportation, since more volume often does not generate better prices, so shippers tend to see higher-than-market rates if they allocate all their volume to one or two carriers.
Shippers can better manage costs and service levels by diversifying the carrier base. Leveraging several carriers on a lane enables better carrier coverage and network fit, reducing the risk of spot market exposure from routing guide failures.
Clear and concise expectations and feedback between bid rounds are critical to building a reliable and diverse carrier base through the RFP process.
3. Not Focusing on Efficiencies
Many shippers expect carriers to conform to their networks with little success. Instead, try taking a collaborative approach by focusing on economies of scope to align capacity with carrier networks.
Combine lower-volume lanes that have similar origins and/or destinations to create more attractive bid opportunities, such as clustering locations within a 75-mile radius or using three-digit zip code ranges known as key market areas (KMAs).
Carriers benefit from the volume density, which cuts down on ad hoc negotiations.
4. Missing Key Details
Quoting annual volumes in the RFP provides a high-level view of capacity needs, but obscures nuances like volume spikes and seasonality that can wreak havoc on networks.
Shippers can provide clarity and improve bid confidence and accuracy by segmenting lanes and network patterns. This allows carriers to prepare to service lanes ahead of the ebbs and flows in volume, enabling shippers to secure more predictable rates and reliable long-term capacity throughout the duration of the contract.
5. Short-Sighted Evaluation
Simply selecting carriers based on the lowest rates often costs more in the long run. When contract pricing is too low during times of tight capacity, shippers are often forced to turn to budget-busting spot market premiums when they face tender rejections.
Evaluate past, present, and future rates on key lanes to establish realistic budget expectations and secure year-round capacity. Consider other factors such as service levels, lane density, and overall network fit for a comprehensive carrier evaluation.