Negotiating is a huge part of any logistics professional’s job. Though this takes many forms, you probably negotiate most when tendering shipments to carriers.
Your job is to secure transportation service at a rate that makes sense for your company, customers and bottom line — freight tendering is when this balance is struck.
However, while it’s important to lock down service at a competitive rate, doing so efficiently is also a top priority. Struggling to lock in a sound price (one that will get the job done), can lead to shipping delays and failures.
With this in mind, you’re open to weighing your options, making adjustments and optimizing your tendering processes further.
Anderson Trucking Service (ATS) has been accepting freight tenders since 1955. We’ve seen this process evolve substantially over the decades (particularly in the digital age) and today, the shippers we work with tender freight in a variety of ways.
When it comes to it, there is no “best” way to tender freight; each method has pros and cons.
In this article, we’ve listed the five most prominent and effective freight-tendering methods used by companies across industries. In the right situation, each of these procedures can make sense, but, at other times, shippers may want to tender freight in another way. It all depends on your situation: budget, manpower, timelines, carrier pool, freight volumes, etc.
To help you make this discernment, here are five common ways to tender freight plus the pros and cons of each of them:
- Using a third-party logistics (3PL) company
- Using broadcast tendering
- Using a waterfall system
- By fielding spot rates
- Through contract rates
Your method for tendering freight is an important piece of your logistics as repeat tender rejections can become a serious expense. So, here’s what you need to know about these five strategies...
Using a Third-Party Logistics (3PL) Company
Over the past couple of decades, 3PLs have become increasingly utilized by companies around the world. These providers handle various aspects of each customer supply chain, with their involvement dictated by the needs of that customer.
It’s not uncommon for a 3PL to oversee everything from carrier vetting and monitoring to budgeting, paying freight bills and even creating packaging for products.
Among the list of things a 3PL can handle for your business is hosting RFQs and, in turn, tendering your freight.
Advantages of using a 3PL to tender your freight:
- Using a 3PL allows your company to allocate manhours and attention to other tasks, helping you to gain efficiencies in other ways.
- Great 3PLs have market forecasting/budgetary technologies at their disposal which helps them ensure accurate pricing.
- Great 3PLs are transportation experts who ensure your freight is given to reliable parties.
- Working with a 3PL can be cost-effective long term as you don’t need to staff employees to handle your logistics.
Disadvantages of using a 3PL to tender your freight:
- Leaning on a 3PL can hinder your ability to develop in-house transportation/logistics proficiencies.
- Handing freight tendering off to a 3PL gives you little control over who your cargo is given to, limiting your ability to weed out underperformers.
- Tendering frieght using a 3PL makes it more difficult to communicate with the carriers/providers you’re using directly.
- Onboarding with a 3PL can be really expensive, especially initially.
Using a Broadcast Tendering System
Broadcast tendering is another method many shippers use to cover their transportation needs.
In a nutshell, broadcast tendering is the process of posting/offering loads at rates predetermined by the shipper (based on what they’re willing to pay) and tendering them to the first carrier that agrees to haul them at that price.
If no carriers agree to haul their freight at the rate they’ve set, shippers can field adjusted offers from their network, selecting the closest carrier to their “broadcasted” rate.
This first-come-first-serve system is centered around efficiency and can be really effective — particularly in capacity-rich markets.
Advantages of broadcast tendering your freight:
- When the original price listed is accurate and fair, broadcast tendering helps shippers receive reliable coverage without having to negotiate.
- Broadcast tendering can be a quick and efficient way to conduct bids.
Disadvantages of broadcast tendering your freight:
- To set accurate prices, market research must be done which takes time and energy.
- Setting up and monitoring bids (especially for high-volume shippers) can be an arduous process.
Using a Waterfall Tendering System
Waterfall tendering systems have become increasingly common in recent history. To administer a waterfall bid, shippers offer loads to carriers and attach a target rate-per-mile to them (to set a baseline price they’re looking to pay). With this information, each carrier weighs its capabilities and submits a rate to the shipper. From here, carriers are ordered sequentially, from least expensive to most expensive (based on the rate they quoted for that shipment).
Once ordered, the first carrier is given a set time to either accept or reject that load’s tender at the rate they originally submitted. If a shipment’s tender is rejected by its first carrier, it trickles down to the second carrier listed and so on.
Shippers that use a waterfall tendering system are focused, primarily, on receiving a certain price, allowing little room for significant negotiation.
Advantages of waterfall tendering your freight:
- Waterfall tendering saves shippers negotiation time and resources.
- This method incentivizes carriers to provide competitive pricing so they can gain first right of refusal in the future.
- Waterfall tendering is great for peak-season shippers that have pronounced “busy” seasons of high-volume capacity needs.
Disadvantages of waterfall tendering your freight:
- Waterfall tendering often requires large carrier pools which can be hard to manage, monitor and maintain.
- Ongoing rejections can significantly delay your freight shipments as you wait for carriers to either take action or for their allotted time to expire.
- Setting accurate rates takes thorough market analysis which will require manhours and resources.
By Fielding Spot Rates
Perhaps the most popular method on this list, tendering out your loads by fielding individual spot rates is also the most effective in one-off scenarios. With this tactic, shippers secure capacity by reaching out to transportation providers via email, by phone or by hosting a bid using a portal/TMS and requesting quotes for a shipment.
After receiving relevant load details, carriers then respond with their best price and are tendered the shipment, or aren’t, at the shipper’s discretion.
Advantages of fielding spot quotes for your freight:
- Allows you to receive accurate up-to-date pricing from carriers and weigh that pricing against your knowledge.
- Can save you money (compared to a contract rate) when the market rate is lower.
- You don’t need to spend as much time setting prices for your freight and doing market research.
Disadvantages of fielding spot quotes for your freight:
- Fielding spot quotes makes it difficult to budget your transportation dollars and set expectations as you don’t get a baseline rate until your first quote is received.
- Negotiations occur frequently with this method which can eat up your time.
- Spot quotes have little staying power — you’ll have to do this (somewhat manual) process every time you have freight to move.
Through Contract Rates
The final tactic on this list is also worth considering. You see, many shippers decide to enter contractual agreements with their carriers. In doing so, shippers agree to provide tendering opportunities, at a pre-set rate, to a specific carrier to haul freight over a certain lane or set of lanes. These contracts have an expiration date set by the shipper and typically last 3-12 months.
Advantages of contract rates for your freight:
- Contracted freight lanes can be highly efficient, especially if you plan to ship a high volume of loads over the contract’s duration.
- With a contract in place, you won’t need to negotiate with carriers. Instead, simply tender them your shipments as they arise and pay them the agreed-to rate.
- Contracted freight rates can save you money should market forces drive spot rates up while you have an active agreement.
- Contracts with carriers give you priority access to capacity even when market demand is high.
Disadvantages of contract rates for your freight:
- If you lock in a contract with your carriers and then market rates fall, you’ll end up paying more than you need to over that period.
- Contracts are difficult to formulate without enough shipping volume and/or inconsistent routes. So, they may not apply to your business needs.
Make Sure To Tender Freight To The Best Providers
Although it’s difficult for us to point you toward the best freight-tendering strategy for your business (without any information), now you understand the pros and cons of the most common methods our customers use.
Your job is hard enough without having to worry about whether you’re leaving time and money on the table each time your tender a shipment. So, make sure to take these insights into account going forward. If you’re a high-volume shipper with tight deadlines, consider broadcast tendering, if you’re heading into a peak season, give contract rates or the waterfall system a try.
Regardless of how your company chooses to handle this process in the future, it’s important that your carrier network is dependable. Without a great group of providers, it doesn’t matter how effective your tendering strategy is if they can’t follow through.
As such, your next step is to check out this article covering transportation provider key performance indicators and how to assess the performance of your carriers.
You deserve to work with carriers you can rely on — fill your network with great companies using those KPIs.
Finally, if you’d like to learn more about ATS’ transportation services and the steps we take to help companies like yours deliver on their customer commitments, check out our services page here. We are proud to consistently rank among the best transportation companies in the U.S. and would love to show you what a great transportation partnership looks like.