Explaining the importance of a Request for Proposal (RFP) can be tricky to those who don’t have familiarization with parcel shipping and logistics terminology - more so when it’s your own team members.

Shippers regularly seek out my team’s consulting services to get lower rates on shipment services. But a weak point among them is communicating the necessity of an RFP to their own management team. Often, a shipping client will be well-versed in what the RFP is meant to accomplish, but their leadership (Vice Presidents, CEOs, Department Directors) are not on the same page, which can be detrimental to the RFP negotiation process.

How Does This Happen?

The knowledge and skills gap between our clients and their upper managers is common due to differences in daily duties. An average CEO might not understand the nuance between FedEx or UPS for their international program, but they may understand that shipping costs are increasing year over year. Additionally, there are distinctions even the client may not know until they get access to an annual summary of shipping characteristics, which helps both clients and upper management understand what their options are for savings on the RFP launch.

What Are the Stages of an RFP?

Parcel shipping contracts tend to be active for three years, so shippers typically go to bid just before the end of the contract. The RFP begins with an information collecting stage, where the shipper’s consultant will gather a year’s worth of relevant shipping data to build a profile of the shipper’s program. A year is recommended so they can see the times of peak shipping and flow of program demand over the year.

After information collection, shippers and the consultants will create a file containing pricing requirements and a file containing the shipment characteristics. Common requirements could be a rate cap on future pricing hikes, fuel discounts, cost-per-package targets, or the need for the carrier to include Canadian pricing. The characteristic files can contain number of shipments, number of international shipments, and a weight break summary for carrier’s information.

After requirements are communicated, the shipper will send the RFP document to their outlined carriers to request them to submit a proposal. The shipper’s consultant guides them through this stage and looks at any responses submitted and how it compares to current rates for the same package. An example of this would be if a client had asked for a $7 cost per package on ground shipments, but the first round RFP pricing came back at $8.17 per package for a certain carrier. Our team would then advise the shipper that this carrier’s proposal is more expensive for that service, and they should ask for round 2 pricing.

How Can I Explain the Necessity of the RFP?

1. Speak to them in the universal language – money. It is crucial to communicate the expected savings of the RFP project. It is best to utilize your consultant to get a clear image of your yearly program and speak to the story of the proposals submitted to your management, i.e., “We will save $1.5M on our $10M program if we move this volume to UPS” or “We are expected to have 6.5% annual savings if we switch our program to FedEx.”

2. Ensure transparency of process and knowledge of shipping terminology. Clearly outline shipping terms in a cheat sheet for your management. This will enable them to understand the depth of certain discounts before decision-making. An uninformed CEO might push for only basic discounts, which saves only $20K per year on a $10M program, when targeting a fuel discount or additional handling discounts could save them up to $1M.

3. Outline contract expiration dates and the risk of going to list rates. If a shipping contract expires with an incumbent carrier and the business goes to list rates, it will increase shipping costs by more than 150% in certain cases as the business will have no relevant discounting on shipping services. This will quickly eat into the client’s profit margins. The client also loses the stability and predictability of their pricing, making budgeting and financial planning more challenging. Additionally, relying on list rates means relinquishing any negotiated service levels or guarantees, potentially resulting in poorer service quality, delivery delays, and diminished customer satisfaction. It’s best to communicate to your leadership, “Our contract expires in November, so we need to send out an RFP by May, or else we risk going to list rates, which will increase our shipping costs by 130%.”

4. Make sure you’re on the same side and can leverage your program size.

Understand what your upper management needs to feel comfortable with the RFP process. Emphasize the importance of leveraging the company's program size and shipping volume as a bargaining tool during negotiations with carriers. Far too often, my team sees larger shippers unaware of the power they can wield in negotiations. If you’re promising to give $100M in new shipping business to FedEx, your incumbent carrier UPS may not be able to offer such steep discounting. Upper management may feel more comfortable staying with UPS even though FedEx offers millions in more savings for their program, which can delay or diminish the success of the RFP process. It’s best to communicate, “I know we’ve been with UPS since 2002, but FedEx is offering $20M in steep discounts in 2024, perhaps we can keep a small amount of volume with our incumbent and realize those savings.”

Overall, the shipper should prioritize always keeping management in the loop, noting savings and potential risks to their program. By demonstrating a large potential business opportunity within the RFP process, upper management can understand the significant leverage their company holds in negotiating favorable rates and terms. By framing the RFP as a strategic initiative aimed at driving cost efficiencies and enhancing operational performance, upper management is more likely to support and champion the process.

Chelsea Snedden is a Transportation Consultant at Körber Supply Chain. She works with clients to model transportation scenarios, often interpreting complex agreements as the primary data analyst. With a background in sustainability and logistics, she brings a future-oriented perspective to managing transportation programs. Some of the customers she has worked with include Canva, GNC, Covetrus, Baxter, and many others.

This article originally appeared in the March/April, 2024 issue of PARCEL.