Road Freight RFP - difference between US domestic & pan-European

Part 2

Road freight in the United States and Europe share a lot of similarities, however there are also a number of distinct differences. Companies that operate on both continents need to be aware of these differences when they issue a road-freight RFP. Simply using a copy of the RFP used for the United States to bid out the European freight will not work. This 2-part article will highlight the main differences that you will encounter when bidding out road freight domestically in the US and on a pan-European scale. In part 2, the remaining six differences.

5)      Class driven LTL tariffs versus free format groupage tariffs

Most US LTL carriers still have the National Motor Freight Classification (NMFC) system embedded in their systems. This system is complex and rigid. There are 17 freight classes, ranging from class 50 to class 500. The system bases freight rates on standard classifications rather than on a pricing mechanism that pays for space used on a given piece of equipment. Currently shippers make their decisions based on the (CzarLite) net rate and the related discount.

In Europe Groupage (LTL) prices are based on a space use pricing mechanism. In order to set a price carriers need from their clients (shippers) the width, length, and height of each handling unit. The benefit is that this system creates a much easier and cleaner pricing system for all parties involved. The downside is that there is a wide range of pricing structures floating around as each carrier company is free to add its own nuances to a structure.

In the US a discussion around the NMFC price structure is heating up. Over the years, discounts have evolved and become irrationally high. There is increasing discussion that base rates should be restructured and re-indexed to a level that creates a rational discounting process. Also talk about abandoning the NMFC structure is going on. For the moment not many changes are seen however.

The different price structures, that are used in the US and Europe for LTL/Groupage transport, form a big challenge for most companies when bidding out freight. Setting the right class, discount and/or price structure make a huge difference in having a competitive or un-competitive tariff.

 

6)      Trailer weights – US tare versus  EU country tare

In the United States the cross country tare weight for heavy vehicles is set at 80.000 lbs max. In Europe tare weight is not set on a pan-European level but rather on a country by country level (see table below).

 

 

 

 

 

 

7)      Fuel surcharge based on single source versus many sources

Europe does not have a single European source on which carriers base their fuel surcharges. In most cases fuel surcharges are based on individual country fuel indexes depending on the country where the carrier is located.

In the US the most commonly used index for road fuel surcharges is the Energy Information Administration's National U.S. Average On Highway Diesel Fuel Prices.

As a result it is easier to compare fuel surcharges in the US than it is in Europe. In Europe different factors influence the fuel surcharge.

 

 

8)      Single point of contact versus many points of contact

 

In a country wide national US road RFP you will mostly deal with a single point of contact at the carrier company you invited to participate. This person will be responsible for all contact and all actions related to the RFP for the whole United States.

In Europe this is most of the time a different story. Finding out which person you have to deal with often depends on where the tender is issued, location(s) of the shipper and the shipper’s industry. The larger carriers have implemented tender management groups that cover pan-European or global tenders centrally. But in many cases you will have to find the right person at the right location on country level to deal with your RFP.

 

 

9)      Single language & culture versus many languages & cultures

 

Dealing with pan-European freight tenders is always more challenging than dealing with a domestic US freight tender. In the US the primary business language is English and you deal with a single US culture (with some local State flavours mixed in here and there). Although English is the preferred business language in Europe it is not a given that this applies everywhere. Some countries do better in this respect than others.

When issuing a pan-European tender which involves shipper locations and carrier locations in many different countries, languages and cultural differences become a certain issue to deal with. Being able to communicate in multiple languages is a benefit when you deal with these situations. Also having a good understanding of cultural sensitivities will help you in your project.

 

 

10)      State/Country networks versus Country/pan-European networks

 

In the United States shippers have a choice between carriers offering a national network or carriers offering a regional network (covering a number of States). In Europe this is more or less the same. There are a number of pan-European carriers, covering most of the European countries. Next to that there are many regional carriers covering a single country or a group of countries.

On both sides of the ocean the selection of the right carrier mix (local players versus country/European network players) is important to the success of the RFP. While for instance a pan-European carrier will be able to offer you a single point of handling all your freight, they might not offer the best service, coverage and/or price levels. Local or regional carriers can often offer a better service, coverage and price but have limitations in the geographical range they span.

 

 

 

 

 

 

 

 

Road Freight RFP - difference between US domestic & pan-European

Part 1
 

Road freight in the United States and Europe share a lot of similarities, however there are also a number of distinct differences. Companies that operate on both continents need to be aware of these differences when they issue a road-freight RFP. Simply using a copy of the RFP used for the United States to bid out the European freight will not work. This 2-part article will highlight the main differences that you will encounter when bidding out road freight domestically in the US and on a pan-European scale. In part 1, the first four differences.

Terminology

When creating a list of differences between US domestic and pan-European road freight, it starts with the variations in terminology. The variations are small, but still enough confusion can arise from wrong use. While bidding out road freight through a RFP it is good to know what "language" you must use. So let's start with the terminology:

First what do we consider to be road freight? For us this is LTL or groupage, (Full) Truck Load and Parcel (Ground) transport.

 

 

 

Main differences

 

Besides terminology it is not hard to find many other differences between road freight in the US and in Europe. For example only look as the difference between the appearances of US “long nose” trucks versus European “short nose” trucks. For the purpose of this article we focus on items that are directly relevant to a Request for Proposal process.

1)      State/Federal policies & legislation versus EU/Country policies & legislation

 In the US, local State policies & legislation are mixed with Federal policies & legislation. In Europe a similar situation is seen on a country level, whereby local country policies & legislation are mixed with European Community policies & regulations. US Federal rules are set by the Department of Transportation and EU rules are set by the European Commission for Transport. State rules are set by the State Transportation Department, while European countries have their local rules set by their individual parliaments.

In many cases Federal and EU rules prevail above State or individual country rules. But there are plenty of exceptions, for instance: US Federal truck weight regulations apply only to the Interstate Highway System and to the roads that provide reasonable access to and from that system. Truck weight limits on all other highways and roads are regulated by the States.

 Regulation on driver‘s hours, licences, weight and vehicle length restrictions or non-driving days and times have direct impact on the services that can be offered by carriers. It is good to have a basic understanding of the applicable policies & legislation in relationship to the services you are looking for and the destinations you are shipping to.

 

2)      Toll roads and distance based taxation

Toll roads are mostly handled on a local US State or EU country level. Depending on the trade lane, toll can be part of the cost price for a shipment. In most cases carriers include the toll charges in their base freight. In some cases toll is charges as a separate surcharge.

 

In a number of European countries (Switzerland, Germany, Austria, Czech Republic, Slovakia and Poland) a distance based road tax for heavy vehicles is in place. These taxations fall under country specific regulation and not European regulation. More and more countries in Europe are considering the implementation of a form of distance based tax. In Germany it is called LKW Maut. France is about to implement a so-called EcoTax. In the US this system is not widely rolled out. Only four States impose a distance based tax for heavy vehicles, being: Oregon, New York, Kentucky and New Mexico. Distance based taxes are recouped by carriers through a surcharge or are included into the base freight costs for a shipment.

Another phenomenon we see arise in Europe is that highly congested cities impose a separate congestion tax. London and Stockholm are two prime examples. Tolls and taxations form a fixed cost factor that needs to be taken into account when tendering.

 

3)      Parcel market – limited competition vs. lot of competition

Issuing a parcel tender in the US is a different thing than doing this in Europe. The competitive landscape is completely different on both sides of the ocean. In the United States shippers have a limited choice when it comes to selecting a national parcel carrier. It is UPS, FedEx or USPS. In Europe more choice is available.

On a regional level however we see that more choices are available. In the US we see regional players such as Eastern Connection, Lone Star Overnight, Canpar, OnTrac, Spee-Dee Delivery, US Cargo and others offer reliable parcel delivery services against competitive prices. In Europe regional players such as Hermes (Germany), Seur (Spain) or Decoexsa (Spain) may offer similar reliable and competitive services and prices. Most of the European regional players also hook into pan-European networks as a local partner.

Regional carriers can offer benefits over US national or pan-European carriers. In terms of pick up slots and delivery they can beat the services of the large players. Also on the cost side, regional carriers often offer better prices as they move all their shipments by ground transport rather than using expensive air transport.

Having a clear strategy your carrier pre-selection is always important when issuing a parcel tender. Sometimes you might be forced to use the big players, but when the opportunities are there consider mixing in regional players, you might be pleasantly surprised.

 Also see our informative map on European Parcel and Courier companies:

 http://xzisu.blogspot.nl/2013/05/map-of-european-parcel-networks.html

 

4)      Long distance moves versus short distance moves

According to European Union statistics organisation EuroStat, in Europe, 83% of shipments move a distance less than 1000 KM. Rail transport therefor is less preferred to road transport in Europe. In the United States however, a higher quantity of longer distance moves, warrant rail transport as an alternative to road transport.

Both in the US and Europe road freight is still the most prevalent mode of transport. European governments and the European Commission try to reduce the number of road kilometres by promoting alternatives via rail. The success of this campaign has been limited to date however. In the US on a long distance traffic lane a choice between rail and road can be made easier. However rail road rates are high as limited competition exists and especially the captive shippers are stuck to expensive rail traffic as they have no alternative in road transport.

 

In the second part of this article we will look at the remaining 6 main differences that you may encounter when tendering out road freight in the US or EU.