In what it is calling a first of its kind approach to contract primary freight, Seattle-based digital freight network Convoy announced today it has introduced a new offering, entitled Convoy Guaranteed Primary. Convoy described this offering as an “industry-first pricing program to procure capacity for primary freight that reduces a shipper’s total cost by up to 19% while guaranteeing capacity.”
In what it is calling a first of its kind approach to contract primary freight, Seattle-based digital freight network Convoy announced today it has introduced a new offering, entitled Convoy Guaranteed Primary.
Convoy described this offering as an “industry-first pricing program to procure capacity for primary freight that reduces a shipper’s total cost by up to 19% while guaranteeing capacity.”
In a blog post, Ryan Gavin, Convoy VP of Marketplace Growth, explained that Convoy Guaranteed Primary eliminates the win-lose dynamic of traditional RFPs.
“It provides shippers with a fixed margin that can be up to 50% lower than the industry average,” wrote Gavin. “It offers 100% tender acceptance, eliminating thousands of hours wasted each year sourcing capacity when tenders are rejected. And it provides unparalleled transparency into truck costs and total savings realized through the program.”
As for how Convoy Guaranteed Primary works, Gavin wrote that when a shipper uses Guaranteed Primary, they completely eliminate the need for an RFP or mini-bid.
“To start, they allocate all volume on any lane to Convoy,” he wrote. “In contrast to an RFP contract’s fixed per-mile rate, Guaranteed Primary establishes a fixed margin that shippers pay (up to 50% lower than the industry average of 15-18%). Guaranteed Primary customers pay dynamic prices generated by Convoy’s pricing algorithm, which uses machine learning on historical and real-time data to predict truck costs on the awarded lanes, when the shipper is ready to tender, typically a few days out. As the shipper tenders loads to Convoy, we guarantee acceptance by tapping into our nationwide network of hundreds of thousands of trucks. Through automated bidding, carriers compete to haul loads, ensuring our customers always get quality capacity at the lowest available rates.”
What’s more, he noted that Convoy provides full transparency on truck costs and margin for every shipment, also adding that on a monthly basis, customers receive an insights report detailing their estimated savings, comparing their actual costs to what they would have spent using an RFP or the spot market. Customers can cancel anytime, for any reason, too, he said.
In the Q&A below, Convoy’s Gavin provided a detailed overview of Convoy Guaranteed Primary.
LM: What drove Convoy to roll out Guaranteed Primary? How long had it been planned/in the works?
Ryan Gavin: We’ve seen the challenging win-lose dynamic of primary freight contracts for some time. And like all of the innovation at Convoy, Guaranteed Primary started with listening to our customers and focusing on how we can improve their operations against both cost and quality. In 2019, we piloted this approach with a number of our forward thinking shippers. Both the success of those pilots and the positive feedback from our customers gave us the strong signal that we were ready to roll this program out nationwide.
Now, as contracts fail across the industry, there is a growing chorus of demand from other shippers who believe there is a better way than the zero-sum game of contracts and the myth of the RFP paper rate. We felt the time was right for us to solve this decades-old industry pain point and create a true win-win.
LM: What are the biggest benefits of it for shippers?
Gavin: The biggest benefits are cost savings, capacity assurance and total transparency.
First, cost savings. Shippers can lower their total transportation cost by up to 19%. This happens through a combination of, paying a fixed margin that can be 50% lower than the industry average; receiving 100% tender acceptance so shippers eliminate the need to divert shipments to their backup routing guide or spot carriers, where margins can exceed 30% in tight markets; and lastly, eliminating the fixed and variable costs associated with managing an annual RFP event, as well as any shorter-term, mini-bids throughout the year. In soft markets, shippers ride the market down and benefit from lower truck prices without the need to manually source capacity on the spot market.
Second, capacity. Shipper’s get 100% tender acceptance on all volume they tender to Convoy, with no risk of failing over to spot boards to source capacity.
Third, transparency. We provide shippers unparalleled transparency into costs and savings with detailed analytics reports on our customers’ operational and line haul savings, and our actual truck costs with granularity into individual lanes by day of the month. In this report, we also show daily truck cost ranges by lane and how cost-effectively we sourced the trucks on that day. For Convoy, it’s not simply about the lowest cost, we also factor in quality. For example, in some cases, we may not source the least expensive truck based on our confidence in the driver’s ability to make an on-time pickup.
LM: What are the biggest competitive advantages of this, from Convoy’s perspective?
Gavin: The biggest competitive advantage is the reputation that we’ve built with our customers. Programs like these underscore how we see the industry, how we approach challenges, and how we partner with shippers in our network to build new solutions. It’s rare, if not unheard of, in the freight industry to promise to lower the total cost for a shipper while providing 100% tender acceptance, with virtually no risk, as a shipper can cancel at any time.
Convoy is a digital freight network so our business model is naturally aligned with our customers’ interests. In contrast to brokers and asset-based carriers, the growth of our business is based on our ability to create a win-win scenario in which we drive down shippers’ costs while also helping carriers earn more.
The more efficiently we source capacity, the more we drive down shippers’ costs. The more we drive down costs, the more volume shippers tender to our network. The more volume in our network, the more we can combine multiple shipments, creating more lucrative opportunities for drivers. The more lucrative the opportunity for drivers, the more capacity they provide to our network.
LM: How many shippers participated in the “testing” period, going back to 2019? What were the biggest “lessons learned” from that?
Gavin: We are currently working with nearly a dozen shippers who are either actively piloting or have launched this program at scale, and several others who will be launching soon.
We’re constantly learning, but some of the early lessons learned were: (1) we learned that this program is relevant for both our enterprise customers, as well as smaller shippers. In fact smaller shippers who don’t have the leverage of large volumes to pit carries off one another in an RFP, may get the most benefit as they can use Guaranteed Primary to stay off spot boards to lower costs with more budget predictability.
(2) We learned that we needed to be very clear on how this program was different as some of our customers had previous, failed experiences with Cost plus pricing programs. At first glance, Guaranteed Primary looks a lot like a traditional cost-plus program. And although both programs make use of a fixed margin, there is an important difference. Cost-plus programs are backward-looking, while Guaranteed Primary is a predictive (future-looking) program.
With cost-plus, transportation teams don’t have access to accurate carrier costs at the time of tendering. Instead, shippers just receive an invoice after delivery. This leads to operational headaches and unexpected costs because shippers are expected to reconcile the actual carrier costs for every shipment.
By contrast, Guaranteed Primary is based on Convoy’s predictive pricing models. When transportation teams tender their freight (e.g. daily, every few days, weekly), Convoy instantly generates a rate that predicts our costs to source the truck. Our pricing is based on machine learning models that get smarter with every shipment. And we take on the liability of our predictive rates being accurate. When our rate predictions are off, we shoulder the financial burden, eliminating the need for any billing reconciliation.