For the past 20 years or so, securing the best truckload spot rates has meant putting a bid out to quote with your carriers. The focus was either on securing the best price or getting the capacity as soon as possible.
Now, a new approach—smart tendering—offers shippers the opportunity to blend the time and price benefits by combining machine learning and new digital models to find spot more effectively.
Let’s take a look at freight tendering in the spot freight market, how smart tendering compares to the traditional models of tendering, the impact smart tendering has on routing guides and other benefits that come from introducing data science and behavioral science into the spot freight procurement process.
What is Freight Tendering in the Spot Market?
Procuring the best truckload spot rates involves freight tendering, a process in which shippers ask carriers to provide a quote for transporting shipments from Point A to Point B. Most shippers today are using either one of two methodologies:
- Broadcast tendering puts a load out to bid to all carriers at the same time with no price differentiation. The first one to reply wins. It’s a race where time is the only consideration. With broadcast tendering, there is no optimization of price.
- Waterfall tendering, on the other hand, focuses solely on price at the expense of time. In this method of securing truckload spot rates, shippers approach carriers sequentially one-by-one. If they don’t get the right price, they move on to the next carrier. Sequential tendering gives up significant time value, and shippers are never going to offer a higher price until they’ve gone through all the carriers in their sequence. Consider the enormity of that: If a shipper has 100 carriers in a sequence, and allowed each of them 30 minutes to quote, that’s 50 hours of tendering.
In either case, the mechanism is the same. Carriers receive an invitation to tender, which includes shipment and transport data. They will analyze those details and prepare a bid (price) based on the shipper’s requirements. Shippers then scrutinize the quotes and select the carrier who has offered the best terms under the required conditions. From the planner’s perspective, however, it’s not always about getting the best truckload spot rate price, and in some cases they lean toward favored carriers, regardless if there is a cheaper option.
With either approach, shippers must choose to optimize for cost or time at the expense of the other. Shortcuts or biases on the part of the planners can further hinder the shipper’s ability to optimize for their goals.
Smart Tendering vs. Other Models
In contrast, Smart tendering is a software-based approach to truckload spot rate procurement that leverages machine learning and behavioral science to more efficiently explore the price/capacity landscape.
The software uses a catalog of tendering strategies to automate daily procurement. The strategies are judged primarily on their likelihood to save money, achieve a match, and the speed of matching. Each strategy autonomously manages the full tendering process, from first offer to match, and all associated dynamics (which carriers should be made offers to, at what price, and in what timing).
Here are four things that set smart tendering apart from traditional approaches:
- Shippers are making offers, not asking for bids.
- The offers are instantly accessible.
- Offers have a high degree of differentiation. Not every carrier is offered the same price at the same time.
- Those offers and prices can evolve over time. For instance, a carrier might receive an offer for $100; 20 minutes later that offer could jump to $300, and maybe an hour later it drops down to $200.
In this way, smart tendering, blends the broadcast and waterfall approaches in a well-structured, automated way that provides the time and price benefits.
Smart Tendering & Its Impact on Routing Guides
Most shippers have routing guides in place to honor contractual commitments on rates and volume. Dynamic routing guides utilize technology and vast sets of carrier data to help shippers easily pivot to new carriers. This flexibility is a must in a market where a shipper’s portfolio of preferred carriers changes constantly.
But let’s say a shipper has worked through those 10 commitments or the carrier has rejected a load somewhere along the way. Now with the contractual obligation met, a shipper can fully leverage smart tendering, moving with confidence to find coverage outside of the routing guide for that rejected load. Shippers become more dynamic by working contract freight and spot freight in parallel and are better positioned to take advantage of dips and swings in the market.
With smart tendering embedded into existing workflows, shippers gain major flexibility, resilience, and the confidence needed to evaluate the tradeoffs between spot and contracted opportunities and take advantage when the market is favorable one or the other.
More Benefits of Smart Tendering
Here are a few more reasons why smart tendering is worth careful consideration for procuring truckload spot rates and capacity:
- Cost reduction – Sustainable truckload spot rate reduction, as much as 8-12%, is realized consistently over time.
- Consistent execution of strategy – With the human organization setting the strategy, the software should better implement it than human beings could. This could mean optimizing for savings, but often also includes other strategic goals, like carrier concentration.
- Operational gains – 90% no touch procurement leads to a 20% increase in productivity per planner), which results in increased speed to find capacity.
- Improved carrier engagement – By breaking biased decisions, shippers will open access to greater volume and revenue through their best carrier partners.
Smart Tendering: It’s Time to Embrace the Future of Road Procurement
Using smart tendering for procuring truckload spot rates and capacity is transforming supply chains in much the same way that the advent of same-day delivery did years ago. That was wild when it first came out but now it has become ingrained in consumers’ daily lives and they expect it. They no longer have to focus on deliveries—they just know they’ll be there. Similarly, shippers who embrace smart tendering for spot freight procurement not only will experience significant savings in price and time but also the ability to focus their attention on other parts of the business.
Smart tendering is at the heart of TNX Logistics. Our solution automates procurement using data and behavioral science to deliver a sustainable rate reduction and simpler back office for spot buying. We are a true partner that provides hands-on support and we will monitor your progress with you to ensure success. Schedule a demo today to learn more.