Freight Plan RFQ Carrier Determinants Carrier Contract

Contract Negotiation

 

There are a number of carriers available that offer different services for shipping product.  Packages weighing less than 50 lbs. are generally shipped using a carrier that specializes in the movement of small packages as opposed to product that is palletized and weighs more than 50 lbs.  Before you begin to negotiate a contract, you need to understand what type of product is being shipped (i.e., small high tech components, heavy bulk material, etc) and the delivery requirements of the shipper (i.e., domestic overnight, 2nd day, 3 or more day or international air or ocean).  It is important to hire the proper carrier in accordance with the delivery requirements and the type of product being shipped.  Otherwise, you run the risk of hiring a carrier that provides more service than required by the shipper.  This can lead to greater cost.

 

Once you have determined what type of carrier to hire for the service required, you need to establish the present baseline cost (see also Freight Audit).  This will include lanes (origin and destination) used to ship product, average weight shipped per lane on a monthly basis, and the number of shipments made per month for each lane.

 

After the baseline cost has been established, the “Request for Quote” (RFQ)) can be prepared and mailed to the carriers.  The shipping lane information gathered in establishing the baseline cost is included in the RFQ.  The carrier will use this information to understand their revenue and their capability to handle your shipments (i.e., do they have a capacity issue).    

 

When the RFQ is returned, the logistics manager should review each carrier based on the following elements:  transit time, service performance, and cost.  The top carriers, based on the previous elements, will be selected to make a presentation to a logistics panel.  The logistics panel should consist of the corporate logistics manager and traffic managers from each shipping location.

 

Once the carrier presentations have been concluded, each member of the logistics panel rates each carrier based on the Carrier Selection Determinants.  Each determinant is given a weight.  The panel member assigns a rating from 1 – 10 for each determinant.  Total Determinant rating is found by multiplying the weight by the panel member rating.  Each member’s total rating will be combined with the other panel members’ rating to come up with an average rating per carrier.  The top two scores will help you arrive at the preferred carrier.  Panel members should be encouraged to express concerns they have regarding a carrier, and this should be taken into consideration before final selection takes place and the contract signed.