COVID-19 has made the past two years especially challenging for both shippers and carriers, with much of the uncertainty surrounding freight rates and capacity forecasting persisting. Leaving many of us wondering whether or not the economic recovery we’ve seen in the U.S. will continue or fall to the wayside as the pandemic drags on.
In addition, truckload capacity is still playing catch up in the middle of a persisting driver shortage with no end date in sight – while rates continue to escalate. All these unknowns have effectively left supply chain professionals scrambling.
That said, if you want to make your next RFP the best it can be, the key is to properly prepare your process and understand the market conditions at play. Here’s a quick look at what’s going on:
What are the larger issues at play?
While the pandemic created a lot of chaos, it also accelerated many market trends that were already in progress. For example, tightening capacity was already happening in the market back in 2018, so the stage was already set for an explosive rate environment to be heightened by COVID-19.
As a result, the annual seasonality patterns we had come to expect went out the window, and 2020’s peak season ended up lasting the entire second half of the year, more or less. In 2021, we saw a lot of that take place again. We also saw a huge shift toward e-commerce that was largely driven by increased consumer demand under nationwide lockdowns.
When you factor in the severe labor shortage and lagging truck production on top of this increasing demand, you get retailers and manufacturers with record-low inventory levels scrambling to keep up, highlighting just how important supply chain resiliency has become today.
Where are we at with pricing trends now?
Fortunately, the spot market has started to soften somewhat following a lengthy period of stress. However, “spot market volumes are still 30 percent higher than last year, driven partly by supply-chain bottlenecks and material shortages. Drivers and trucks are still in high demand, as is demand from shippers to move high volumes of urgent retail freight,” according to research from DAT.
Delays in intermodal rail networks have caused more trucking demand and bottlenecks lately as well. According to Maersk, “congestion in hubs such as Chicago and Memphis is causing ‘some major disruptions,’ with rail import dwell at Long Beach extending beyond eight days on average because fewer trips are heading back to the West Coast from the Midwest hubs.”
In turn, this additional pressure on today’s overloaded transportation networks has put more pressure on capacity, keeping rates higher than previously projected. Despite these conditions, many industry professionals are holding out hope for truckload spot rates to plateau soon, which ultimately means contract rates still have a ways to go before they’ll hit their peak.
What are the forecasts predicting for 2022?
U.S. GDP, 2021 is on track to expand by an impressive 6.6 percent, while forecasts for next year are predicting a slower increase of 5 percent, according to IHS Markit. Either way, both of these figures are more than two times the typical 2.3 percent average annual rate of expansion we’ve been accustomed to over the past decade.
This data goes to show you just how much of a hit the U.S. economy took at the beginning of 2020. Unlike the trucking booms in recent history, we may not see a rapid decline in freight rates depending on how supply chain limitations play out through the rest of this year. According to JOC, “whether—and how quickly—the market turns in 2022 ‘really depends on how many power units (Class 8 tractors and trucks) get delivered, and how many drivers we get in seats.’”
Since the fall of 2020, tender rejections from contract carriers have averaged around 25 percent, and with contract rates ready to follow in the footsteps of the spot market, the approaching RFP season will likely experience a rise in contract rates, according to U.S. Xpress’ recent report. The post-pandemic freight market cycle has certainly been a wild ride, but spot rates are going to calm down eventually — it’s just a matter of when.
What can shippers do to prepare?
Given these market forecasts, it’s crucial for shippers to understand what their business needs to outperform their competitors and run a successful RFP. How you structure your bids and the timeline you allot for the process will play significant roles in establishing the effectiveness of an RFP.
So, here are some of our top tips to help your company optimize its RFP process for 2022:
- Conduct thorough, consistent RFIs that clearly define your organization’s goals, expectations, and scale for carriers and third-party providers. By communicating detailed information like volumes by supplier locations and accurate estimates on the number of trucks you require, your RFPs will produce better results in the long run.
- Introduce your RFPs with a formal bid letter. A solid bid letter outlining what your business needs, your minimum requirements, what you will bring to the table, relevant technology, specific credit terms/conditions, etc. is a great way to make your RFPs more attractive to transportation partners.
- Clarity is key. Even if it feels a little repetitive, shippers should explicitly detail mode(s) of transport, lane origins and destinations, seasonality trends, specialty services and payment terms in their bid.
- Stick to your guns. Truckload shipping is all about maintaining positive, mutually beneficial relationships, so whatever you communicate throughout the initial phases of the bidding process should be shared with and applied to all bidders.
- Avoid dragging out the process. While the length of time it takes to complete a bid is usually tied to its size, you’ll want to create a reasonable timeline for your RFP process that will help hold you and your bidders accountable for each step along the way.
- Leverage leading technology, like the Emerge Dynamic RFP platform to centralize data management will allow you to more easily distribute, as well as update your RFPs, and improve overall execution.
To learn more about how Emerge’s deep industry expertise and advanced freight procurement platform can help shippers transform their RFPs and take on whatever else this year has to throw the industry’s way, click here.