During most of her 14 years at iconic brand Bumble Bee Foods LLC, Sharon Regan, the company’s logistics director, didn’t give a lot of thought to ending its long-term contract process with freight brokers. Bumble Bee used that model for years, and Regan believed in it. Then the fourth quarter of 2017 hit.
Solid demand combined with shrinking truckload capacity as carriers left the road in the face of the federal government’s mid-December deadline to meet its electronic logging device (ELD) mandate led to a spike in tender rejections and subsequent unwanted moves to the pricier spot market. The turmoil didn’t seriously hurt Bumble Bee because contracts with its two brokers during that time, J.B. Hunt Transport Services Inc. (NASDAQ:JBHT) and C.H. Robinson Worldwide Inc. (NASDAQ:CHRW), mandated 100% tender acceptance and no upcharges to cover a load. But it didn’t emerge unscathed. While its loads were covered, it still got hit with higher rates. In addition, with rates fluctuating wildly, both sides found little stable ground from which to negotiate, she said.
Once pricing settled down in the fall of 2018, Regan took stock of her shipper-broker-carrier relationships and attempted to take as much uncertainty as possible out of them. The core step was to move from variable bidding intervals to a fixed time frame. Bumble Bee’s bidding cycles would be all over the lot, forcing her brokers to, in Regan’s words, “bake in” rates that might not hold if macro conditions changed. Following substantial input from the brokers, Regan decided that quarterly bidding would work best.
Bumble Bee moves about 3,000 truckload and intermodal loads a quarter, with truckload accounting for 28% of its total annual spend. Founded in 1899 and owned by British private equity firm Lion Capital, Bumble Bee operates five distribution centers, located in the Southeast — its largest market — Midwest, Northeast, California and the Pacific Northwest.
Bidding for the lanes under the new initiative was vigorous and rational, Regan said, as befit the cultures of three excellent providers that understood Bumble Bee’s business. Each lane was awarded to one of the three brokers. The one condition was that the brokers adhere to the 100% tender acceptance requirement that Regan said is essential to execute the company’s multi-stop truckload deliveries to grocery warehouses across most of the U.S.
The new arrangement had a kicker that became known as “Hurricane Pricing.” Truck rates tend to spike during major storms, and that is especially true for Bumble Bee’s stockkeeping units (SKU). Regan called her SKUs “hurricane food” because their nonperishable nature makes them high-demand foodstuffs during weather-related power outages. To ensure proper coverage, Bumble Bee created a micro spot market of sorts for its brokers in the affected markets. Regan suspended the normal lane commitments and allowed the brokers to bid at elevated prices. Bumble Bee determines what constitutes a “weather event,” and it must meet a high bar. The program was utilized for two-and-a-half weeks during Hurricane Dorian earlier this year and it worked well, Regan said.
For Bumble Bee, the timing of the switch to quarterly RFPs couldn’t have been more fortuitous. The company was able to leverage the benefits of the yearlong rate softening as contract prices followed spot steadily lower. But it was not a zero-sum game, according to MoLo President Matt Vogrich. The strategy built consistency and efficiency into the relationship, and ended the time variability that could undermine broker bidding. The frequency and reliability of the quarterly RFPs was a boon to MoLo’s carrier and owner-operator partners because it created more opportunities to match schedules with good lanes and loads, Vogrich said. The strategy effectively preempts any spot market scenarios because brokers are able to adjust their pricing on the fly with more accuracy should market conditions change, Vogrich added.
Regan said she took pains to minimize the transactional nature of the change and to build in as much equity for brokers as she could without compromising Bumble Bee’s distribution needs. Vogrich said it’s apparent that Bumble Bee values its relationship with brokers and, by extension, the big and the many small carriers that run for it. “They give us consistent freight, and they treat us very well,” he said.
Vogrich lauded Regan’s team for putting in the extra work in the face of more intense deadline schedules than it had before. “She’s doing this to benefit the brokers and the carriers, which is amazing,” he said. Robinson declined comment on the initiative. Hunt did not respond to a request for comment.
The broker-friendliness of the program aside, Regan doesn’t consider Bumble Bee a traditional shipper of choice of truckload carriers. She doesn’t ship many single-stop loads. Receiving at warehouse locations isn’t always seamless, which can lead to long wait times for drivers and have a domino effect on subsequent deliveries along the route. Load variability can be an issue because volumes typically fluctuate depending on order flow. For example, a big product promotion could require truckload supply for a while, only to be followed by a period of smaller orders that call for less-than-truckload (LTL) capacity, she said.
Quarterly RFPs are not new. Nor are they for everyone. Regan knows Bumble Bee could be exposed when the market inevitably turns tight again. For that reason, many shippers are comfortable in the “set it and forget it” world of annual bids. History has shown, however, that long-term contractual commitments are routinely ignored during periods of intense capacity tightening, a fact of trucking life that prompted Regan to make her changes.
Despite the risks, Regan said she is happy with the program, in large part because it reinforces Bumble Bee’s commitment to its brokers and the extended carrier ecosystem. The key takeaway hasn’t been that “quarterly or annual RFPs are better,” she said. Instead, it was embracing a model that was counterintuitive to her and to Bumble Bee, and making it work for all of the stakeholders. “With the help of our partners, we were able to tweak it so we could maintain our core values around relationships,” she said.
(Editor’s note: Bumble Bee filed for bankruptcy protection Nov. 21 over legal expenses related to its involvement in a conspiracy with two other competitors to fix the price of canned tuna. Regan said that it is business-as-usual for her shop.)