For a lot of shippers, logistics providers and freight carriers, the request for proposal (RFP) process may be time consuming and stressful.
The constant work of rebidding freight and wrangling over price could cause major business disruptions, in addition to construct friction between shippers and carriers.
“The explanation corporations do RFPs is because they need to know they’re not getting screwed by the market,” Craig Fuller, FreightWaves’ founder and CEO, said on the Way forward for Supply Chain event in Cleveland on June 23. “The issue is that 40% of a carrier’s relationships with shippers are turned over just because someone has underpriced him or someone has bid below them.”
To assist shippers and carriers navigate the marketplace, Fuller said the FreightWaves SONAR platform has launched an answer called Index-Linked Contracts.
“Considered one of the things we’ve been working on at FreightWaves is how can we help empower shippers and carriers to mitigate their exposure to the volatility of the freight market,” Fuller said. “Index-Linked Contracts is actually using a third-party index to index your prices to the rates. Because the market goes up, the shipper pays more, and because the market goes down, the carrier gives up slightly bit more.”
Contracts linked to market indexes have been around in other industries for years, equivalent to agriculture, energy and mining. However the trucking industry still mainly relies on RFPs to bid out freight lanes to transportation providers when capability is required.
Fuller said continually having to rebid lanes is bad for each shippers and carriers.
“It creates havoc on the shippers, it creates havoc on the carriers, and it’s time we put a stop to it,” Fuller said. “It’s time we said enough is enough, that this bidding process that all of us have built businesses on may be modified.”
The FreightWaves SONAR platform will function the idea for Index-Linked Contracts, which is able to float with the market and be certain that that each shippers and carriers are getting a good price.
FreightWaves’ Index-Linked Contracts solution may be indexed to identify rates, in addition to contract rates, with quarterly or monthly adjustments.
Using Index-Linked Contracts, different rules may be set for various lanes, with a shipper aiming to award freight on a hard lane on the index plus 50 cents per mile, while a lane where capability is more available may very well be set on the index plus 10 cents.
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Fuller said Index-Linked Contracts also can profit carriers by helping them retain more truck drivers.
“It’s also higher for the drivers. At asset-based trucking corporations, driver turnover is a significant issue,” Fuller said. “Considered one of the first reasons that drivers turn over is that they aren’t getting home, and that they’re not getting home as often.”
Trucking corporations plan their road network and where they hire and recruit drivers from based on the lanes they’re servicing, Fuller said.
“If my network is continually turning over, from continually having to take freight from different locations, or being moved to different locations, it’s incredibly disruptive. The one reason that happens often is because any individual else undercut you within the RFP,” Fuller said.
Zach Strickland, FreightWaves’ head of freight market intelligence, said using Index-Linked Contracts could also help corporations operate more efficiently.
“The efficiencies gained within the means of not coping with an RFP and all of the bids, you possibly can spend your time working on things that provide slightly bit more return on investment, slightly bit more value,” Strickland said. “It’s really a blank slate. Shippers and carriers just agree that we’re going to agree that because the market shifts and moves up or down, we’re just going to let our routing guide pricing also do the identical.”
Watch: Suggestions for recruiting drivers in a troublesome economy.