The annual transportation RFP process has been like the weather – everybody complains about it, but nobody can do anything about it. However, that's no longer true. Shippers and carriers have technology-driven alternatives that don't require making educated guesses about transportation rates a year in advance.
The annual RFP process is costly and inefficient for carriers and shippers. It uses historical data that won't be relevant for long – look at 2020 for a good example. Annual contracts may never entirely go away because everyone requires a baseline budget for planning purposes. The three-to-six-month process to arrive at a contract that takes effect the following year isn't serving anyone well.
Shippers must realize that all lanes aren't the same, and the capacity situation fluctuates week to week. In addition to supply and demand, external factors such as severe weather and pandemic-related shutdowns mean contracted rates from last year may be painfully out of date.
The annual RFP process, supported by pricing tools such as static routing tables and rate maps, puts both shippers and carriers at a disadvantage. Even mid-year contract reviews aren't agile enough. In 2020, wildly swinging demand meant that carriers refused contract pricing just a few months after signing. Traditional practices were built out of technology constraints that don't exist anymore.
For LTL pricing in particular, the annual RFP-driven contracts don't reflect the nature of the mode. Shipper demand fluctuates, and carrier networks are also dynamic based on client demands and driver availability. Forcing these market conditions into an annual pricing agreement isn't effective for either party.
Real-time pricing is the answer for a more flexible, collaborative way to talk about LTL rates for shippers and carriers. Using APIs, or software that allows other software to communicate with each other, carriers can offer real-time rates to optimize routing decisions. Carriers can provide precision pricing for specific lanes and specific times, rather than relying on averages rates. After all, average rates mean shippers are paying too much about half the time.
How can real-time precision pricing help? Perhaps you're using a new distribution center to support ship-to-store fulfillment or sourcing from a new vendor. Those lanes won't be covered in the annual contract. With precision pricing, shippers are empowered to make tactical, lane-by-lane transportation decisions.
In today's market, consistency is not part of the equation. Your supply chain must be agile, ready to adapt at any time. Annual contract rates will serve as benchmarks, precision pricing reduces reliance on a bidding process that typically breaks down.
As part of the freight digitization trend, digitization of pricing automates the entire process and eliminates manual handling errors. Loads can be booked online, with instant confirmation from the carrier. Any accessorial or unique load requirements are rated at the same time, reducing billing adjustments later in the process. The need for freight bill auditing drops significantly as there fewer errors to investigate and reconcile. Overhead for licensing and maintaining static tables and routing guides is no longer needed.
Shippers, carriers and 3PLs reap benefits from the instant exchange of information. Carriers can discount targeted lanes to win business. They can evaluate lanes that do not generate sustainable yields so the shipper can move the volume to another carrier. Monthly reviews between carriers and shippers allow both parties to align dynamic shipping needs with the carriers' networks.
Agility and transparency benefit all parties to match the right lanes to the best LTL carrier among your preferred providers. API-enabled pricing enables frequent and productive conversations focused on numerous small adjustments to move the right freight in the right lane at the right rate.
Take control of your LTL spend and reduce the impact of the annual RFP process with digitized monthly adjusted pricing.
Find out more about how your company can capitalize on freight digitization in our free guide.