What is "smart tendering" and why is it the future of spot freight procurement?

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 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 behavioural 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 optimisation 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 analyse those details and prepare a bid (price) based on the shipper’s requirements. Shippers then scrutinise the quotes and select the carrier that 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 favoured carriers, regardless of if there is a cheaper option.

With either approach, shippers must choose to optimise 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 optimise 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 behavioural science to more efficiently explore the price/capacity landscape. 

The software uses a catalogue 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 at what timing). 

Smart tendering and its impact on routing guides 

Most shippers have routing guides in place to honour contractual commitments on rates and volume. Dynamic routing guides utilise 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.