Carriers are a necessary and critical part of your supply chain. But the details of figuring out the best price, routing, and reliability have never been harder.
How do you know which carrier is best suited to your particular needs? Your decision can be heavily influenced by the price, which is why shippers often base their decisions purely on a request for proposal (RFP). However, in a world where shipping prices shift practically every day, that pricing has become difficult to lock-in.
Where does price fluctuation come from? In part, the industry is still feeling the effects of the COVID-19 pandemic, with changes to capacity, disruptions to regular flow, and labor shortages. Somewhat overlooked, though, is the second cause of shifting prices: mini bids.
In this series, we are going to discuss the effect that mini bids have on the market, how shippers should respond to these fluctuating costs, and how custom-tailoring a network solution can save your business on overhead costs.
Let's start by breaking down the difference between an RFP and a mini bid.
A Not So Mini Ask
At first, it's difficult to see why a mini bid has such a large effect on the market. After all, aren't shippers requesting the same information out of carriers from both? Wouldn't going through a mini bid instead of a full-fledged RFP be faster for shippers and carriers, saving time across the board?
In a sense, yes. And also, no.
Let's start by breaking down the differences between an RFP and a mini bid.
An RFP is there to align pricing and service to your specific shipping needs. Typically, you would declare what is being shipped, where it's going, and how much you're sending at once. Lead time and special considerations are also key.
A mini bid, however, is a little different. It's a scaled-down RFP that is laser-focused on a set of freight challenges that weren't present during the time of the original full RFP. Typically, mini bids are used to address a short-term freight project or an influx of orders as the market changes.
Mini bids themselves are a consequence of the shifting marketplace. Market fluctuation has made shippers think that they have a carrier, timing, and price ready to go. But the next day, due to changes, all of that has changed. Mini bids are useful as a pricing request out to see what deals are available today.
This pop-up pricing can address both internal and external changes and can provide some helpful advantages when used correctly. By utilizing a mini bid to manage fright capacity and budget, an organization can:
- Pay a lower-than-market rate for a short period of time
- Expand their carrier base on a fright lane
- Improve the balance of contract and spot utilization in an established freight lane
There are situations in which requesting a mini bid makes more financial sense than requesting an RFP. For example, a whole RFP wouldn't be necessary for a new destination paring that was not in the original proposal.
So why is this trend raising prices so drastically?
The Market Effect
When shippers turn to only requesting mini bids, there are unintentional consequences. By overdoing this snapshot request, shippers are not analyzing the whole supply chain and identifying opportunities to make strategic changes that increase efficiency. By focusing on one specific part of the supply chain, you could be missing out on a cheaper solution that may exist already within your network. Some of those solutions might come from re-routing, consolidation, or shifting transportation modes.
In addition, the trend of mini bids is causing bid fatigue across the entire shipping network. When shippers repeatedly request mini bids, there is less of a response rate to actual RFPs.
Put simply: if RFPs aren't being requested as often—and when they are, they take up more time—this leads to carriers not responding at all. And when they do respond, carriers are pricing lanes higher.
So, how should shippers respond to seeing these fluctuating rates? Well, it isn't to panic at high prices. Shippers don't have to be completely at the carrier's mercy if they have a better understanding of their turnkey resources.
In the second part of this series, we go into more detail on how to utilize your data to help your shipping solution thrive across a network of carriers.
