The current downturn in the freight industry has encouraged many shippers to place their freight transportation out for bid. In 2007 large numbers of shippers view the RFP as an opportunity to offset the rate increases experienced in recent years. As a consultant who works with shippers, carriers and 3PL’s, I find myself in the unique position of preparing and issuing RFP’s on behalf of some clients and responding to RFP’s on behalf of other clients.
RFP’s have become so prevalent in 2007 that they are literally “swamping” some carrier pricing departments. In speaking with a mid size 3PL this past week, I was informed that they have received over 30 RFP’s so far this year. Their pricing department is so busy responding to these bids that they now have to turn down some of them to keep up with the demand.

Here are a few thoughts on issuing and responding to freight RFP’s.

Shippers

• Make sure you have a mandate from senior management to implement the results of your RFP so you don’t waste your time and the time of your carriers.
• Make sure that you can come up with a year of clean, quality data with each your commodities and shipment weights clearly identified.
• Make sure that you have accurate baseline freight spend data for each of your cost components ---- freight rates, fuel, accessorial charges.
• Determine the objectives from your freight bid up front and make sure you don’t just focus on price.
• Leverage your volumes with your short listed carriers over multiple rounds to achieve the best results for your company.
• Take your time and do it right.
• Give your carriers adequate time to respond. In view of the number of RFP’s in the market today, carriers will need three weeks of more to prepare a quality bid
• Sign multi year contracts to achieve rate stability.
• Meet with the carriers’ senior operations personnel to ensure a successful implementation.
• Drill down and probe on the carriers’ capacity on various lanes.
• Establish metrics with your carriers.
• Track compliance on a consistent basis.

Carriers

• Even if you are the incumbent carrier, don’t assume that your company is in the driver’s seat.
• Develop your “boilerplate” bid packages in advance with your company’s differentiating features clearly articulated.
• Focus on those bids and on those lanes that work best for your company.
• Since there is no guarantee that you will secure the lanes of most interest to your company, don’t forget to focus on those secondary lanes that could be of benefit.
• Make sure your costing model is up to date.
• Be creative.
• Check the math.
• Be prepared for multiple rounds of bidding.
• Be honest with the shipper about which lanes your company is able to handle effectively. There is no point losing a block of good business because your company fell down on a few lanes where you cannot supply the equipment on a consistent basis.
• Submit your bid on time.
• In addition to your sales and pricing team, make sure you have a strong implementation team that can move the freight if you are awarded a block of lanes.

3PL’s

In addition to the items specified above,

• Assemble a team of core carriers that you can count on to move your customers’ freight in a reliable manner.
• Select carriers that are best able to meet the specific needs of each shipper.
• Pay your carriers in a very timely fashion to build loyalty and dependability.
• Negotiate aggressively with your carriers
• Since you are in a position to hand pick your carriers for each customer, articulate to the shipper your value added proposition and how your company differentiates itself from asset based companies.

These are interesting and challenging times. Shippers and carriers can each achieve their objectives by following this list of principles.

A recent report from the RAND Corporation, a US government think tank, makes the ominous statement that “disruptions are increasing in North American supply chains.” Capacity constraints could ultimately threaten North American economic competitiveness. The report concludes that “rising shipping costs, increasingly lengthy shipping times, increasingly variable transit times and increasingly large inventories, all of these are evidence of constraints in the freight transport system.”
What are the key elements of freight capacity? What are the constraints that are limiting the efficiency of our freight transportation system? According to Randy Mullet, Vice President of Government Relations at Con-way, Inc. they are:

1. Physical infrastructure: - “We are not doing a good enough job adding additional capacity, whether it’s highway, rail, ports, or air.”
2. Driver availability: - “This is a constraint because we are not keeping up with the changing demographics of the workforce.”
3. Policy constraints: - These constraints refer to “things like the paper work for homeland security, and regulations covering hours of service, and taxes.”

Here are a few observations on these key issues.

1. Physical infrastructure

If you look at some of our major cities in Canada, the problems are very apparent. During my frequent visits to Montreal to see clients and colleagues in that wonderful city, I cannot help but be struck by the fact that the Decarie Expressway and the Metropolitan Boulevard are still two of the major transportation arteries. My recollection as an ex-Montrealer is that these roads were built for Expo 67, forty years ago! In Toronto, you only have to look at the congestion on highway 401 during much of the day to see the same problem and to ponder the impact the gridlock is having on Canadian commerce and productivity. While highway 407 (toll road) and 403 have been built within the past 40 years, the 401, 427, Don Valley Parkway and QEW still handle much of the traffic in and around metro Toronto. A similar story exists in many cities across North America.
The situation at the ports is very similar. The rapid growth in trade with Asia and other economic regions has placed great pressure on many of the leading ports, whether they are in LA/Long Beach, Vancouver or the east coast. As an example, Anthony R. Coscia, Chairman of the Port of New York and New Jersey recently indicated that “during the past 10 years, our cargo volume has doubled and our rail volume has nearly tripled. The dramatic increases require us to take immediate steps to ensure that our port continues to grow and prosper.” The investment in roads and ports has not kept pace with the level of economic development.

2. Driver availability

The driver issue is a result of a number of different factors. It starts with the fact that true value of truck drivers is not properly recognized in our society. Truck driving takes a variety of skills to perform but this is still not fully appreciated by many people. Pay for drivers, has been increasing in recent years, but it has not been sufficient to offset the negative effects of being away from home for blocks of time which does not exist with other competitively valued professions. The pressures to meet the hours of service requirements, safety concerns, customs processes and customer/dispatcher demands makes this an undervalued career choice.

3. Policy constraints

These constraints come in many forms. According to Tom AppaRao, Director of Transportation Planning for the region of Peel in Toronto, the “EA (environmental assessment) processes for highways and transit are slow and cumbersome, causing excessive delays in protecting corridors and constructing the necessary transportation infrastructure.” Another hurdle is the inconsistency across North America with respect to the use of long combination vehicles (LCV’s) or multi axel tractor trailers. LCV’s have been in use in Western Canada and Quebec for some years but are not acceptable in Ontario. Similarly, 3 axel trucks which are acceptable between Ontario and Quebec cannot be used between these provinces and many states. The aftermath of 9/11 has resulted in a new array of security procedures, some of which are at odds with efficient and effective transportation.

What are the solutions to these critically important issues? Certainly finger pointing and saying that these issues are up to the private or public sector to solve is not a satisfactory response. Clearly there is a need for all concerned parties to work collaboratively to address and resolve these issues with a comprehensive plan. In the next blog a compendium of ideas will be presented from a variety of people with expertise in this area.

In the last blog, there was a discussion of some of the major infrastructure and capacity constraints that may adversely affect our economy in the years ahead. In this blog we will look at some of the suggestions being proposed to alleviate these constraints and foster economic growth.

One of the views expressed by many experts in this area is that a collaborative effort is required from governments at all levels and the private sector. Finger pointing and name calling serve no purpose. Here are some concrete suggestions to address the problems.

1. Create a senior contact person in the major government bodies to provide leadership and oversight

Creating an Undersecretary of Infrastructure in the U.S. Department of Transportation and an Assistant Deputy Minister of Transportation in the Canadian Department of Transportation would be productive first steps. The suggestion is that these individuals would oversee all modes of transportation and take a holistic approach to infrastructure..

2. Establish a coalition of transportation organizations, both private and public, to create a White Paper on Infrastructure and establish Priorities and Funding Requirements

To be productive, the group must include representatives from the key stakeholders (e.g. shippers, railroads, ports, trucking companies, government) and must look first at developing a macro level plan.

3. With a White Paper as output, create a set of Regional and Corridor plans

The $2 billion Alameda Corridor project in Southern California is an example of a public – private partnership that succeeded. The federal and state governments, two ports and three railroads joined to prioritize the rail corridor as a project of national significance. The Alameda Transportation Authority continues to manage the project.

4. Create new Funding Mechanisms and Methodologies

Some projects, while high in priority, are too costly for a single entity to fund and a public-private partnership is often needed to draw funds from a number of sources. The burden of maintaining roads, bridges and other facilities, many built during the 1950’s, is becoming difficult to bear. Federal, state and local governments need to spend an estimated $155.5 billion improving highways and bridges in 2007, according to transportation officials, up 50% over the past 10 years. At the same time, politicians find it difficult to raise taxes.

What is the solution? For some people, the answer is to sell public assets to private investors and have them manage these “infrastructure funds” as a “fixed income proxy”or Infrastructure Income Trust. Investors are looking at achieving 11% to 12% returns and lower risk. Infrastructure “delivers similar yield expectations to high yield bonds and real estate,” says Cynthia F. Steer, chief research strategist at pension consulting firm Rogersway.

Chicago’s former chief financial officer, Dana R. Levenson sums up the situation: “There is money to be had and cities need money.” U.S. representative Chaka Fattah, a Pennsylvania Democrat, proposes to privatize the Philadelphia International Airport and use the proceeds to fund poverty programs – a much easier sell than raising taxes.

5. Provide Tax Credits

Another suggestion is to provide tax credits to companies to encourage them to make infrastructure investments. As an example, Gil Carmichael, senior chairman of the board of directors at the Intermodal Institute has proposed a 25% tax credit to encourage investments in rail trackage. Many railroads cut back on excess trackage in the 90’s to reduce costs. Creating double or triple tracks in some areas would result in more throughput and less bottlenecks.

6. Expand the use of long combination vehicles (LCV’s)

Currently LCV’s are in use in Western Canada and Quebec but not in Ontario. While LCV’s are not “politically palatable” in Ontario at this time due to concerns over public safety, this concern does not appear to have any basis in fact. Increasing the use of LCV’s would increase capacity without adding more trucks to the road.

7. Approve legislation to reform Immigration

A shortage of qualified drivers remains a major issue in North America. The current “softness” in the freight industry should not mask the long term problem that exists in attracting drivers into the transportation industry. A review of current immigration policies could result in new sources of drivers.

8. Create a Central Repository of Information on Infrastructure Proposals

As this topic gains interest and visibility, a host of new ideas will be developed. These new ideas may include innovative funding proposals and infrastructure creation proposals that may not have previously come to light. It would be valuable to create a website or central source that can easily be referenced.

Do you have any thoughts on what can be done to address this major issue? If so, please respond to this blog and share your thoughts with the readers.