A 3PL enigma that is only getting more and more difficult to unravel…
As market capacity continues to tighten, 3PL RFP teams are adjusting their pricing strategies to cope with the continuous rate increases that are occurring across the United States. Furthermore, as the industry approaches its annual ‘RFP season’ (Q4), pricing teams are being challenged with less lead time to submit, and considerable market volatility levels. One question that pricing/sales managers are considering is - whether to increase margins or otherwise hedge against anticipated truck costs?
First, before diving into that question, let’s consider some common RFP practices –
- Shipper RFP exercises typically consist of at least two rounds
- Each round is open for approximately 7-10 days
- At the end of the final round the shipper typically adds on an additional 1-2 weeks minimum for analysis and communication of awards
- Go-live dates are then set anywhere from 1-5 weeks out past the communication of awards
Therefore, it can be concluded that the average RFP process takes anywhere from 4-10 weeks from initial distribution to the initial tendering of awarded freight.
According to Truckstop.com, from August 3rd to August 31st, the all-in dry van rate for the popular lane Los Angeles to Dallas has risen by almost 15%. From June 2nd to August 31st, the rate has risen by over 30%!
Now let’s circle back to our original question of whether to increase margins or anticipate increases in truck costs to cope with volatile markets.
Margins are a strategic variable incorporated into rates, by service providers, to ensure an adequate quality of service provided to each unique shipment. They are to a large extent controllable by the provider. Truck costs however are determined by the economics of individual geographic markets. Supply and demand play the biggest role here and are driven by numerous uncontrollable and difficult to predict variables (e.g. the cost of fuel, availability of backhaul freight, government regulations, etc…). Therefore, in order to maintain profit margin integrity within volatile markets, 3PLs must attempt to predict pricing trends by leveraging both sophisticated data and analytics tools as well as the experience and ‘tribal knowledge’ of longstanding industry veterans - all while executing numerous simultaneous RFPs with increasingly short lead times!
Ideally, both strategies should be used, but the level to which each is optimized is a longstanding question when it comes to successful RFP execution.
As each week continues to bring light to new market volatility, Traffic Tech is here to make sure that you’re updated with the most relevant information, as well as offer any assistance with moving your freight.
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