How to Develop a Good LTL RFP
By Paul Benfer, Kinetic Supply-Chain Services, LLC
As published in the TRANSDIGEST-Volume XXV, Issue No. 266, April 2020
Few things in transportation management provide a higher level of satisfaction than running a successful LTL RFP or bid. Whether you manage one for a client or your company, the results often exceed your expectations when the process is developed and managed competently. Having experience on both the carrier and consultant side for clients provides a unique perspective on managing an RFP. The nuances involved on both sides can make a dramatic difference in the final bid results. The one thing I have learned over the years is that when you think you have thought of everything to include in the initial RFP offering, there will always be some piece of information a carrier will need that wasn’t included.
Where to Begin?
Few things in transportation management provide a higher level of satisfaction than running a successful LTL [less-than-truckload] RFP [request for proposal] or bid. Whether you manage one for a client or your company, the results often exceed your expectations when the process is developed and managed competently. Having experience on both the carrier and consultant side for clients provides a unique perspective on managing an RFP. The nuances involved on both sides can make a dramatic difference in the final bid results. The one thing I have learned over the years is that when you think you have thought of everything to include in the initial RFP offering, there will always be some piece of information a carrier will need that wasn’t included. Where to Begin? The first thing to do when developing an LTL RFP is to list your goals. Are you looking to save money? Do you want to reduce the number of carriers due to limited dock space or to increase pricing leverage? Are there lanes where service isn’t up to your needs and expectations? Do you want to standardize accessorial fees? Is the administrative burden of working with certain carriers becoming overwhelming, requiring a change? Your company hasn’t benchmarked LTL costs within the past few years? These are all valid reasons to run an LTL bid.
Timing Is Important!
Is now the right time to run an RFP bid? Developing an understanding of economic conditions is imperative, as it can play a significant role in how aggressive your carrier participants will be if the primary goal is cost reduction. 2019 saw a decrease in LTL tonnage as the year progressed, as reported by carriers ODFL and YRC. If you believe the economy will go into a recession at the end of this year, perhaps waiting until later in 2020 is the right move.
Should I Outsource the Process Via a Technology Tool?
The majority of the automated RFP management tools are for truckload bids rather than LTL. The few LTL RFP management tools on the market base their cost on the size of the RFP. If you have the budget available, it can be an excellent vehicle to manage RFP responses from multiple carriers. I have asked a few LTL carriers if they prefer the automated systems available to excel based data files. They stated that it doesn’t make much difference if the data is complete and in a format that is easy to manage.
Should I Qualify Potential Participants?
There aren’t nearly as many LTL carriers as truckload providers. The great majority of shippers are familiar with LTL carriers that service their lanes. It’s still a good idea to create a qualification questionnaire for unfamiliar or little-used LTL carriers. My recommendation is to develop a simple questionnaire. Ask for a brief overview of their organization that includes their coverage area, list of terminals, fleet size, safety rating, filed and paid claims ratio by shipment percentage, insurance coverages, and operating ratio for the past three years. Inquire as to whether they have a continuous process improvement program(s). Ask if they work with your competitors or handle similar products and commodities. It is always a good idea to find out if a carrier is experienced in handling freight like yours – both through their system and at the point of delivery.
LTL RFP Components – Set the Ground Rules
An introduction and overview of your business should be provided to the carrier participants. You can accomplish this via a Microsoft PowerPoint, Publisher, or Word document. Be sure to include freight characteristics, average density, pick-up, and delivery requirements, aggregate shipments, weight, and revenue information.
Are your shipping volumes consistent year-round or seasonal? Do you ship to retail locations with docks, distribution centers, construction sites, or retail stores in strip malls? Are there consignee locations that require a straight-truck delivery? Do you ship high-value commodities? Better information will improve LTL carrier responses and avoid issues after new carrier implementation.
Use a contract, rules tariff, fuel surcharge schedule, and rate base tailored to your freight and delivery characteristics. If you aren’t sure where to secure a good LTL contract, talk to a transportation attorney or consultant with significant LTL experience. My suggestion is to not make your contract so one-sided that the carrier is hesitant to give ground in any area. Once you have a contract to work with, add specific language that insulates your company from surcharges and carrier rules that add costs and waste administrative time.
Be creative in developing strategies to limit your risk. One example is to require the carriers to use the billed weight instead of the actual weight (450 lbs. shipment rated at 500 lbs.) if your commodity is classified by density. Why pay an up-charge based on actual weight if your shipment is billed at the higher LTL weight break? You are paying for that weight, so that is the number the carrier should use when computing density.
Implement a rules tariff via a contract appendix and exempt your company from the carrier’s rules tariff. You might as well not use a contract if you allow the carrier to reference their rules tariff, as it can be used to override your agreement. Carrier rules tariffs are continually updated and skewed to their advantage, not yours. A list of common LTL accessorial fees can be found below.
A fuel surcharge schedule can be used to reduce costs and insulate your company from spikes in the cost of diesel fuel.
Use a single rate base to simplify rating and cost comparisons. My suggestion is to select a rate base version no more than seven or eight years old. Do not adopt an LTL carrier-specific rate base. Most LTL carriers adjust their base rates to help compensate for head-haul lanes. Please contact your incumbent LTL carriers for a rate base recommendation or contact me via email.
Once your overview, contract, rules tariff, fuel schedule, and specific shipment data are crafted you are ready to distribute the RFP.
Provide Excellent Shipment Data
The more granular information you can provide the better. I recently asked a prominent LTL carrier for their preferences. Their reply was specific shipment data by five-digit zip code to zip code or postal code for cross-border freight, the ship date, pallet or unit count, actual freight class, density and consignee name.
If your shipping patterns are static, a three-month report should suffice. If you are a seasonal shipper, a year’s worth of shipment data is preferred. Depending on your business, you may not want to provide a consignee list to a broad range of carriers. Understand data that includes consignee name and location can help secure better carrier rates.
Most of the LTL carriers use costing software developed by TCG [Transportation Costing Group]. The TCG program utilizes data provided by the carrier to cost shipments. The more shipments you provide a carrier at origin per day reduces the pick-up cost of each shipment. In fact, the cost difference from one to two shipments is close to 50%. The same holds true at delivery. That is another reason to ask the carrier if they currently handle competitor freight. It can help you negotiate better rates, as it is much more profitable to deliver two or three shipments to a single delivery point than one.
Know your actual weights by mean and mode. Understand that a shipment will operate better at nine-hundred pounds versus one-thousand pounds, as the latter will be billed at the higher weight break. The TCG model will allow for one-hundred pounds of the unused cube when calculating costs.
Many chemicals move at Class 85, which when used for density rated commodities covers freight from 12 lbs. per cubic foot to less than 15 lbs. per cubic foot. Chemicals shipped in drums, pails, and totes can weigh much more per cubic foot than the Class 85 range. If significantly heavier, highlight the average density of your products in the RFP to help improve the LTL carrier proposals.
Include photographs of a few typical LTL shipments with weights and dimensions with the LTL RFP. If your freight is tendered square and stackable it will help to secure better rates. You may think building pyramids reduce damages, but it just makes your freight more costly to handle. Most LTL carriers now use E-Track systems and air bags in their line-haul trailers, which reduces the frequency of damaged freight. Adding cube height via a pyramid doesn’t help reduce damage claims.
Build Lines of Communication
When you submit your LTL RFP to the carrier with a contract, it is forwarded to their legal department or pricing manager for review and modification. The modified agreement is then returned to you for review and comment. I suggest you hold a conference call with the individual(s) who reviewed and modified the agreement to work out any issues of importance. If you approach the negotiation in a positive way, with an explanation of why a sentence or section is important to keep in the agreement, the carrier on occasion will offer a compromise or even accept your reason(s). Person-to-person interaction is very important when building a relationship and negotiating a contract. You cannot get a three-dimensional view of either party’s concerns via email.
Ask the participant carriers to send their local sales or operations personnel to visit your distribution centers to see how the LTL freight is tendered to the incumbent carriers. This simple courtesy helps to build a rapport between your distribution operations group and the carrier’s local sales and management team. A positive visit can work to your advantage, as the local team can (and will) exert internal pressure to help secure your business. Conversely, they can alert the pricing team to freight that may not work well in their system. You do not want to take on a carrier that isn’t equipped to properly manage your freight.
Establish Submission Deadlines & Response Format
Provide the participants with a complete timeline of the LTL RFP process. The due date for their initial proposal, along with a timeframe for the second round of discussion and negotiation should be included. I usually provide a thirty-day window for the first offer, then one to two weeks for analysis followed by a second round of discussions and negotiations before final selections are made. A declination letter should be sent to all participants who do not make the cut.
Clearly outline your preferred carrier LTL RFP response format. Whether it be an email reply, web-based TMS [Transportation Management Systems] response or some other method of communication.
Develop Key Performance Indicators (“KPI”)
Some RFP’s include KPI’s for performance review. A shipper often adds so many KPI’s to the RFP that it renders their use in carrier evaluation meaningless. Pick three or four at most to measure carrier performance. In my opinion, on-time pick-up and delivery, and claims-free handling are the most important LTL KPI’s. You can add invoice accuracy and speed, as carrier billing has slowed recently due to aggressive weigh and inspections programs.
You can develop a more extensive list of measurements to review performance. A carrier report card can be used for an in-depth evaluation of service. For purposes of the RFP, I would recommend the shortlist outlined in the prior paragraph.
The Final Selection
Now that you have received, reviewed, and analyzed the LTL carrier offers, it is decision time. Winnow your choices down to the best responses that match your original goals. Establish primary and secondary carrier choices. Negotiate the contract and appendices before a final selection is made. You may like one carrier’s discount levels, but their contract amendments are unacceptable. If the carrier is unwilling to compromise, the secondary carrier’s offer could become your best or only option. Use the secondary carrier’s contract pliancy as a tool with your preferred choice. Please perform one last review of your current carrier needs, issues, and goals before a final selection is made.
Once you have finalized your selections and awarded the business, make sure the distribution team follows through on your organization’s commitment. I have personally witnessed distribution and shipping managers attempt to subvert organizational goals based on their own preferences and prejudices. Make sure everyone on your team understands the benefits of the RFP and why compliance is expected and demanded. The organization’s needs and goals are preeminent over any individual’.
Common LTL Accessorial Fees Cost Range
Please note that you should negotiate all accessorial fees that pertain to your delivery characteristics. It doesn’t make sense to negotiate reductions for services that are never required. Concentrate on securing relief for fees for services that will be needed.
It is important to be specific with definitions. One excellent example is limited access delivery. LTL carriers have broadened the traditional definition of limited access delivery. The exact types of delivery locations should be spelled out in your agreement.
A few of the above accessorial fees are normally waived if requested via the LTL RFP process. Two examples are single shipment and delivery appointment fees. I would insist on a waiver of reweighing and reclassification fees.