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The Freight RFP Season Shaping up to be Challenging in 2017

by Rick LaGore on 2017-08-22 13:42:02

RFP Season.jpg

The annual ritual of conducting a freight RFP is about to begin.

  • Time to set the goals by meeting with all the stakeholders.
  • Determine the strategies to achieve the goals.
  • Build the spreadsheets to track the goals.
  • Contact the freight providers to be included in the RFP.
    • Vet the new carriers and service providers.
  • Let your team know to expect to work some extra hours.
  • ... and inform the finance and procurement teams it will be difficult enough to hold prices, let alone hit a savings target.

We are all accustom to running through the first several steps, but the last one ... really?  The last thing anyone wants to do is tell Finance the numbers are not going to be as favorable as they have been in prior years.  

The issue is the freight market is starting to show warning signs of rising costs and tighter capacity, just as the RFP season is about to begin.  The next few paragraphs provide the backdrop to this freight RFP season, along with some strategies to bring the savings Finance and Procurement teams are expecting.

Below are some excerpts pulled from various publications on current market conditions.

  • Domestic intermodal is in peak season a full month prior to last year.  2017 intermodal spot rates have consistently averaged 8% to 10% higher than the prior year versus prior three years have been flat to down. (graph below and weekly reports can be found here)

Intermodal & Diesel Price Yr-over-Yr  Change-5.png

  • A recent Journal of Commerce (JOC) article, entitled "Sounding the Alarm", brought forth data points that indicated trouble ahead, as it relates to capacity constraints and potential impact of ELD's.
    • "FTR, through its partnership with load board operator Truckstop.com, is keeping a close eye on the spot market, and it's booming.  One key metric we track is the ratio of loads posted versus trucks posted.  In recent weeks, this ratio has been running about twice the level it was this time last year, when the ratios was holding at levels considered normal over the previous five years.  The number of loads being posted is up substantially from last year, while the number of trucks looking for loads has barely change."  The article went on to talk about ELD's and its potential impact to worsen the situation.  
  • Another article published by the JOC entitled "Road Signs Point to Trucking Price Hike Ahead for Shippers" said July atypically started strong and showed no signs of slowing down in August.  
  • The CASS index experienced a 1.4 percent year-over-year increase in July, while the spend jumped 4.5 percent. 
  • LTL carriers have shared their networks are full and are pushing rate increases early than normal this year. to fund required investment to enhance their networks.  Typically, the LTL market catches the uptick in rates after truckload, but with e-commerce volumes on the rise LTL is now the leading indicator to price increases.

Industrial production (graph below), a great directional indicator for freight needs, supports more freight is moving in the market.  After peaking in November 2014, the index showed a steady decline until making a comeback November 2016.

Industrial Production on the Rise in 2017

In an article published by the JOC entitled "Record Monthly US Imports Forecast for August" indicates imports are having a banner year, with import containers up 4.9% over the prior year.  August is predicted to be the highest import month on record and is the fourth out of the last 6 months on record as being the busiest in the history.

Carriers are recognizing and backing up the need for more capacity, as Class 8 orders continue to increase, which is represented in the below graphic from the FTR website.  Over the years asset providers have been slow to invest, as various downturns have burned them, so to see the growth in class 8 orders would indicate there is plenty of data points to support future demands.

Class 8 Orders.png

To add to the building of price pressure is rate transparency has held increases at bay for the first half of the year, as seen in many publicly traded trucking and logistic financial reports.

In other words, the market appears to be ripe for increasing freight rates over the remainder of 2017 and into 2018.    

success with intermodalListed below are four opportunities to help overcome the expected freight rate increases coming from this RFP season:

  • For truckload shippers, converting or enhancing lane capacity with 53' domestic intermodal is a great option that is probably the easiest to implement and a strategy we have seen many shippers already employ this year.  Our recommendation to shippers new to intermodal is to align with a group that can help educate the shipping department on various requirements to follow for a successful implementation of domestic intermodal.   
  • For high volume LTL shippers, implement pooling / consolidation program can be a winner.  This strategy will require some intense work and technology for analysis and execution.  The rewards for shippers looking to go this direction will be a tremendous cost saver and reduce damages.
  • A Managed Transportation Program also brings tremendous benefits, as larger shippers have already discovered and the small to medium size shippers are learning.  The Managed TMS option brings in the following initiatives immediately for a quick ROI: the highest level of technology; a broader and deeper mix of carriers; additional market knowledge to squeeze the most from every dollar spent; and removes the operational challenges so shippers can focus on the initiatives versus on the deliveries. 
  • Delay the annual RFP until mid to late 1st quarter 2018.  This is a bit of a gamble, but an alternative would hold off price increases for at least the 1st quarter.  Going out to market at a time when rates and capacity are in 4th quarter highs gives providers the support to hold to pricing increases, while a 1st quarter bid wold be at a time when the clutch is engaged and everyone is still somewhat guessing / hoping on volumes.  If ELD's do bring about capacity cuts, then this could prove to not be a great option, as prices will surely have the support and maybe more than pre-ELD. 

We wish you the best in this RFP season and welcome the comments.  

Visit us at www.intekfreight-logistics.com when it is time to discuss your next logistics challenge.

For more on 53' domestic intermodal, truckload and managed transportation services, please sign-up for our weekly blogs and visit the InTek Freight and Logistics website.

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