Awarding freight using a First Come First Serve (FCFS) business model may seem like a quick and easy way to get your freight covered and still control costs. However, it creates the opposite effect, by actually increasing your cost and decreasing your quality of service.
When it comes to First Come First Serve, it’s not always the best option for your shipment.
Costs Rise Not Fall
Costs rise not fall because your transportation suppliers (TSP’s) are all contacting the same carriers that have capacity, which creates a bidding war in the wrong direction. Each time a new TSP contacts a carrier with capacity, they increase their rate, creating an artificial demand in the market place. The result is a higher price.
Quality of Service Suffers
When a shipper uses a FCFS model they actually decrease their service level. There are two reasons for this. The first reason is the lack of a solid business relationship with their TSP’s, and the second is caused by the artificial demand created by the FCFS model, which increases cost.
When using an FCFS model, it is impossible to know each supplier and understand their capabilities if you have more than five TSP’s. Furthermore, when the TSP knows your just sending out a mass email, they only work on your freight when their loyal clients are not available. This creates a lot of service failures because the only TSP’s willing to work on the freight are either new to the market, or new employees at established companies who need business. This usually translates into poor service.
The other factor is caused by price increases. If a carrier has been contacted by multiple TSPs, they know that they can increase their rates (artificial demand). So when the first TSP returns to the carrier to secure the capacity, the carrier will no longer honor the rate or will have canceled for the higher rate offered by the last TSP.
Real Life Example
A manufacturer of equipment sent out a mass email to 30 to 40 TSP’s. Out of those 30 to 40 TSPs, only a handful responded. Then the bidding war started to fight for the same capacity. The rates went up because the carrier would drop the load with one TSP to take it for a higher rate with another TSP.
- We helped the client determine the best TSP for the load requirements.
- Eliminated all non-responding carriers.
- Eliminated all carriers with multiple service failures.
- Helped the client create a list of the top 3 TSP’s for each type of service.
- Worked with the shipper to build a plan allowing the customer to solicit pricing, then evaluated that pricing with specific criteria they determined to be important.
- Awarded the freight to a specific TSP that met all of the evaluation factors.
- Reduced transportation costs
- Increased on time pickups and deliveries
- Reduced man power cost resulting from overtime
- Reduced incurred discounts and back charges as a result of late delivery.
Our recommendation is to select one TSP that matches pricing with hundreds of carriers, finding you the most reasonable price with the best service. Why pay more simply to have the first come, first serve option? Instead, go with a single supplier who can give you the most competitive rate with the most benefits.