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As freight demand softens, it’s time to revisit your procurement strategy

February 6, 2023 / US
As freight demand softens, it’s time to revisit your procurement strategy

By: Nathan Adams, Vice President of Transportation and Procurement, Uber Freight

As freight demand continues to pull back from historic highs, the market is correcting itself after unprecedented supply chain challenges. We’re still seeing a gradual loosening of capacity, lower spot rates, and increased competition among carriers for freight. Due to excess inventory, some retailers are even canceling orders and offering discounts to clear unwanted goods. 

As shippers recover from the inflated pricing they’ve been dealing with over the last year, now is an especially good time to scale their network from a cost standpoint. A flexible, ongoing approach to procurement is vital for shippers to evolve their bidding strategies amid shifting market conditions while maintaining fruitful relationships with their core group of carriers. 

Agility is key to navigating a dynamic supply chain

Volatility is now a given in the logistics industry. To move goods cost-effectively while navigating the ups and downs of an evolving freight market, shippers and carriers alike have to be ready to adapt at a moment’s notice—and make a conscious effort to embrace change rather than evade it. 

Before the pandemic, RFPs (or bids for transportation services) were treated as an annual process to establish a framework for 12-month-long shipper-carrier business relationships. Shippers would renegotiate their contracts once every year to align their budgets and determine if their current carrier bases were effectively fulfilling their capacity needs.

But in a time of increased market uncertainty, shippers need to be able to mobilize and respond to emerging demands on shorter notice. Instead of only circling back with a new RFP every 12 months, contract renegotiations now require a continuous approach to maintaining a functional supply chain network. With all the risks and challenges of managing a network, shippers now view performance maintenance as an ongoing project rather than an annual check-in. 

It’s still important to set a performance baseline with an RFP, but now it’s even more critical that shippers have an effective strategy in place to maintain their network throughout the year.

With access to managed logistics solutions that offer cutting-edge data engineering and industry-leading procurement expertise, shippers can keep up with a much faster-paced bidding landscape. As a result, they can revise their contracts more frequently and make evidence-based decisions when selecting carriers to save on costs.

Make the most of your data to find the right bidding strategy

Before making a bid, shippers must take a comprehensive look at their KPIs around cost and service. Leaning on Uber Freight’s procurement team, shippers can target savings opportunities by benchmarking their current rates and performance. Armed with complete visibility into all cost components and existing carrier relationships, shippers can proactively find areas of improvement to evolve their bidding strategy on an ongoing basis. 

 In doing so, setting expectations with carriers is essential. From shipment volume and frequency to level of service (LOS) to cost per mile, every shipper should establish a clear threshold for compliance. Having a firm grasp of your data allows for better implementation as well. Remember: Cost savings from renewed contracts won’t mean anything unless performance requirements are effectively communicated and applied for the long term. With measurable goals, shippers and carriers can work together to optimize their networks and root out cost and service inefficiencies.

Overall, access to data-enabled insights can help shippers nail down a balanced bidding strategy. Saving on freight rates is always top of mind for any organization. Still, beyond that, there are key systems and processes across a shipper’s network that may require further investment to maintain a certain level of service. Leaning on Uber Freight’s team of domain experts and data engineers, shippers can determine where they can save on costs and where they can invest to ensure optimal performance. 

Seize the opportunity to form new partnerships 

It may seem counter-intuitive, but a declining freight market offers an opportunity for shippers to diversify their carrier portfolio. While upholding fruitful business relationships with incumbent carriers is vital to ensuring reliability and predictability across their supply chains, loosening capacity also means there’s more competition among carriers for freight. Shippers now have the leeway to test new prospects alongside their existing carrier base. 

And often, partnerships that are forged in a declining market have the potential to be more resilient. With the cyclical nature of supply and demand, we’ll eventually see contract rates rise again—and when they do, shippers will want to rely on existing relationships with dependable carriers. Now is a perfect time to focus on expanding and strengthening that foundation.

From adopting a more fluid, ongoing approach to contract renegotiations to leveraging data-enabled insights during the RFP process, shippers will have to evolve their bidding strategies to better navigate supply chain challenges and disruptions going forward. More than ever, shippers need a logistics partner that can embrace change and help them respond to emerging demands in real time. With the right data, expertise, and technology, shippers can make proactive decisions that reduce costs and expand their networks while ensuring the timely delivery of their goods.

 This blog is for informational purposes only. The conclusions drawn are based on our own analysis and the Uber Freight marketplace.

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