Anyone working in the freight transportation sector should know the meanings of all the documentation, acronyms, and proposals they see. It may initially appear difficult to follow, but you’ll soon be glad you learned the terminology.
The terms RFP, which stands for “request for proposal,” and RFQ, which stands for “request for a quote,” are among the most often used in the freight transportation sector.
Freight and transportation managers usually detest gathering the time-consuming data to prolong an RFQ (Request for Quotation). Their first tender document may appear much more intimidating than it does to individuals with prior expertise. Keep in mind that creating an RFQ is an investment for your business. Thus, a thorough and precise analysis of earlier freight activity is crucial.
Some businesses even offer a route for people who want to submit a quote to ask questions throughout the RFQ period. After the tender is awarded, recording this conversation might help to clarify any possible misunderstandings later on.
RFQ:
An RFQ is, in essence, a request for quotes from suppliers on the price of their goods or services. It aids in pricing, quality, and deliverability comparisons between various businesses. This paper is beneficial for companies to be clear on their requirements and comparison criteria.
Preparing the RFQ:
The time required to write the tender is based on three factors.
Whether or not you have ever finished a tender.
- The period of the current tender and that of the upcoming tender
- Evaluating every trade route, removing unnecessary ones, and incorporating any that have developed since the prior agreement’s inception
Compiling all the data is easy with the wide variety of transportation software available today. The easiest part is data mining. It is a little more challenging to analyze and record.
Types of RFQ:
With the aid of RFQs, you may control the bidding process and save expenses.
Here are a few different RFQ types and how they operate:
Open Bid:
All interested suppliers may submit an open bid in response to the RFQ. The proposals may be opened at any point in the process so that other vendors submitting bids for the project may see pricing quotations. While this may help lower prices, it may encourage price-fixing or vendor collusion.
Sealed Bid:
After the submission date has passed, the buyer opens every bid at once. Until the business opens the bids, suppliers are unaware of the quotations offered by other suppliers. Sealed bids can give another level of transparency and aid in the battle against fraud throughout the bidding process. This choice is highly advantageous if you are in charge of a public or government project.
Invited:
Specific suppliers are requested to submit bids for the product, often those with whom you’ve previously worked. This method may be applied to sealed or open bids.
Reverse Auction:
In a standard auction, the seller seeks to obtain the highest bid for a specific item. A type of reverse auction is an RFQ. You can ask particular suppliers to submit their lowest price for the product you want to purchase if you do not receive the price you desire during the first round of an RFQ.
Tips for Receiving the Best RFQ Results:
- Companies who only tender for their main trade channels may distort some of the information in an RFQ. The disadvantage is that, even though they could earn highly competitive rates for most of the business, they are essentially giving the winning bidder unfettered authority to charge whatever they want for the remaining traffic. The less frequent trips will thus offset the savings on the key routes.
- The incumbent is more familiar with the freight needs than any other carrier that has been asked to submit a bid. They know the going prices and the charges for transporting the cargo. If new carriers are unsure about the actual value of the package, they may be tempted to include a “fudge factor” in their proposal. All parties asked to propose must be given access to as much information as is possible to maintain a level playing field. Providing a contract to a bidder with vague details would probably lead to future issues that neither party needs.
- Each form of transportation has a wide range of ancillary fees from one carrier to the next. Free time, fuel surcharges, and other charges can account for up to 35% of a company’s whole freight expenses. The time and complexity involved in analyzing proposals and, when a carrier has been chosen, in reviewing incoming invoices are reduced when these fees are standard across all shippers in the RFQ.
- Ensure that carriers have enough time to reply. It takes time for the shippers to examine the bidding document and determine how it fits with their freight network; this might result in a lowball offer. Analysis, price, and submission should be completed within three weeks to a month.
- The number of bids received will rely on whether you have decided on an open proposal or by invitation only. In either case, every plan needs to be carefully examined for every lane, not just the main ones. One strategy used by new carriers frequently is to “deep-discount” the busiest routes and more than makeup for that margin loss by charging “above market” rates on the less-traveled lanes.
Typically, shippers only consider bids every two to five years. Errors will be made, and lessons will be learned in the first case. Based on continued communication and notes of any oddities throughout the issue of the RFQ, the procedure gets easy and more streamlined for each consecutive RFQ. Upcoming proposals will be solicited as a consequence with complete awareness of the requirements needed by both sides.
Last but not least, it’s critical to consider both charges and service standards. Inquire about the bidders’ references from customers compared to your freight requirements in terms of volume and geographic scope. Low prices will probably not be advantageous if the service standards are subpar for importers and exporters who consider their freight forwarder to be an “extension” of their business.
Benefits of RFQ:
Why would a customer bother to send an RFQ before completing a purchase?
Here are a few benefits:
Pricing:
Knowing the particular costs of work is difficult, even if you are an expert in mathematics. The price of materials can fluctuate from location to place, as can the cost of services.
You’ll understand the worth of your project when you ask vendors to complete an RFQ. Your freedom of choice can help the business save money.
Budgeting:
An RFQ makes it easy to create and keep to a budget since you can see which businesses or goods your company can afford by providing pricing information upfront.
Easily Comparable:
Each of us has encountered a salesperson who tried to upsell us on a product we didn’t initially want. RFQs offer some defense against such annoyance. You can see precisely how much each possible vendor would charge for the service or item you need since they place all potential vendors on an even playing field. RFQs also allows you to see how accommodating or unaccommodating the vendor is to your demands.
Importance of RFQ in business:
RFQs are a terrific approach to help save money. It is one of the main advantages of employing them. RFQ assists you in evaluating which is the better alternative systematically and logically when you need to calculate the costs of items from numerous suppliers to discover the lowest one. Additionally, it makes suppliers aware that even if there is competition for your company, your decision-making is not influenced by bias or unjust prejudice if you decide not to pick them.
What to include in an RFQ:
An effective RFQ can assist you in directly comparing costs. The following five items should be present in your RFQ:
Basic Info:
By providing general information, you may establish clear expectations. That entails delivery addresses, submission dates, and closing dates. The inclusion of this safeguard guard against last-minute misunderstandings and unforeseen rush expenses, among other things.
Needs for Quality and Quantity:
If you’re prepared to submit an RFQ, your research is probably already complete. You may use an RFQ to determine whether businesses can meet your standards.
Include the quantity of the product that you require. Additionally, you should include the grade or quality of each item you want to charge.
Price Information:
The more information you provide, the more likely your RFQ will be successful. Request a breakdown of labor expenses, raw material costs, and delivery charges from sellers. Don’t forget to allow them to justify any additional fees.
Payment Details:
Although you should be working with reputable businesses, it’s still a good idea to include your small print to block any potential loopholes. It entails including the time frame within which a quote will be regarded as genuine and any available incentives for making an early payment.
Deliverable Information:
Verify the deliverables several times before delivering your RFQ to ensure they are complete and understood. Request a full pricing breakdown from vendors. They should establish delivery details, sketch project schedules, and summarise the precise product specifications.
While putting up an RFQ might be complex, we want our clients to feel at ease with new procedures. This RFQ tutorial should help you make the most of the bidding process. Have inquiries? If you have any questions, get in touch with us right now.
