The traditional RFP process for less-than-truckload (LTL) shipping contracts is an institutionalized approach that helps shippers plan budgets while giving carriers information they need to determine equipment and staffing needs.
It’s particularly well-suited to companies shipping large volumes. Their freight essentially sets the line haul. But is it the best approach for mid-size and smaller businesses moving LTL freight?
Freight pricing is dynamic
Legacy RFP policies that treat pricing as an annual event, with shippers and carriers estimating what will happen over the course of 12 months, are unrealistic in today’s dynamic environment. They often lock shippers into higher rates because there’s no mechanism for taking advantage of lower rates made possible by changing circumstances.
Similarly, it makes it harder for carriers to haul at capacity when the contracted freight volume drops.
For example, let’s say that a large, multinational consumer packaged goods company has a carrier contract to move 10 truckloads of merchandise between Chicago and St. Louis weekly, but is only moving 9.5 truckloads this week. That leaves the carrier with unexpected capacity it needs to fill quickly. How does it do that? Often by discounting the rate.
Continuing with this example, imagine you’re planning to ship freight in the lane that has this sudden capacity available at an attractive rate. If you’re 100 percent locked into a higher rate based on the RFP process completed months before, it’s possible you won’t even learn about this cost-saving possibility, let alone be able to take advantage of it.
That’s a missed opportunity to save money.
Pricing APIs are a cost-saving alternative
There’s a solution for that.
Many shippers are finding that using a pricing API – application programming interface – allows them to upgrade the RFP process that typically locks them into potentially higher rates. A pricing API is integrated into more and more transportation management systems (TMS) as a component of increasing freight digitization.
This digital, real-time approach to freight pricing makes it possible for carriers to update rates quickly according to market conditions while allowing shippers to instantly capitalize on any rate reductions.
A pricing API that gives shippers access to carrier lane rates in real time is a more progressive approach that many are embracing because it allows both parties to enjoy the benefits of increased agility. It builds on, and contributes to, essential partnership relationships between shippers and carriers.
As part of that relationship, you might tell a carrier representative what you’re moving, when, and where it’s going. If the load fits well with the carrier’s current situation, your representative can use that information to pursue your freight aggressively with instantly updated – and potentially reduced – pricing through the API.
You can access that new pricing digitally as soon as it’s available to save on freight costs for that shipment. Without a pricing API that makes this happen with just a few clicks, the process would require far more time, paperwork, and effort.
Pricing APIs work to the carrier’s advantage, too. An LTL transporter looking to fill that empty trailer space in that movement mentioned from Chicago to St. Louis, for example, can load discounts into the system independent of one-on-one conversations with customers. Shippers using the API can then take advantage of them automatically. This process offers unparalleled agility for both partners.
Hidden cost savings with pricing APIs
Leveraging pricing APIs in place of the conventional RFP process offers other cost efficiencies, as well.
Let’s be honest: The RFP process is costly and time-consuming. Transitioning instead to real-time pricing technology that also improves billing and claims accuracy allows your organization to reallocate staff to work that’s more value-added.
Whether you eliminate the RFP process completely to rely solely on a pricing API or use a hybrid approach, there’s no question that incorporating a digital pricing component will help cut freight costs. The right pricing API creates savings through better information and agility so logistics partners can respond instantly to network and market changes.
Looking to the future
There are three freight pricing certainties as the LTL shipping industry moves forward:
- Freight digitization is increasing.
- Incorporating a pricing API into your TMS will help cut freight expenses.
- Legacy processes, including annual RFPs, will fade away as progressive and cost-conscious shippers take advantage of ever-evolving technology.
There’s never been a better time to re-think the processes and systems your organization uses to contract and partner with carriers.