Simplify Freight Bidding with these 5 Automation Strategies

Organisations that regularly outsource fleets, also known as external carriers, know that freight bidding is a challenge that complicates transportation and logistics. Negotiations are time-consuming for carriers and fleet teams, and further delay the process. Though the easy solution is to hire more people or extend the fleet team, it’s rarely the most affordable option.

Today, operational costs are making margins slim in an already tight market. European and international road freight markets contracted in 2023, while inflationary pressures saw labour costs soar in all 27 countries in the European Union, increasing by 8.3% YoY in Q2 2023.

In this challenging context, automated bidding can improve operations by minimising labour costs and maximising fleet management efficiency. This article will outline key strategies for implementing and managing successful automated freight bidding systems.

Hard Lessons Learned From Freight Bidding 

At Ontruck Transport Services, we’re familiar with the challenge of managing manual freight bidding processes. In our attempts to streamline these operations, we first implemented a digital freight matching platform, which acted as a marketplace enabling carriers to select which loads they wanted to carry. Though effective for managing most loads, it didn’t eliminate freight rate negotiations, so dispatchers continued to be tied up in negotiating calls.

We realised that the dispatch team spent 70% of its time on 5-10% of the most complicated jobs. We called these “corner cases,” or jobs that were not automatically assigned at the price we proposed to our pool of drivers. Unfortunately, the only way to understand why drivers and carriers were not accepting the proposed price was to call them and ask.

Finding an interested carrier and negotiating a freight price was a seemingly minor task, but it cost our dispatch team 15 hours daily. So, we returned to the drawing board and developed our AI cost engine tool to automate the bidding process and save our dispatch team valuable time.

How to Use Software to Automate Freight Bidding

Today, companies can use auction or bidding platforms to implement freight automation strategies that serve the unique needs of their business. To get the most out of their in-house bidding system, customers should consider these five points:

1. Select an appropriate bidding medium

In freight bidding, the bidding medium refers to the platform or method on which a bidding process occurs. Bidding frequency (e.g., daily, weekly, or once a year) is one factor that can influence which platform is selected, the number of carriers to choose from, and the device from which bidding can occur.

Examples of platform-based bidding methods 

• Mobile phone-based bidding: for example, Ontruck Transport Services utilises mobile phone-based bidding. We found that drivers or carriers were already using mobile phones for tracking purposes, so that was the most familiar medium for accessing multiple jobs and placing multiple bids per day.‍
• Temporary website link: Getting carriers to adopt new apps can be challenging. One solution is to create a temporary website link that enables carriers to place a bid without requiring a login or password. This functionality allows companies to share the link with their known network of carriers, enabling them to place bids more easily. 

For example, one of our clients, a global logistics service provider (LSP), opted to use this method. Previously, this LSP had experienced challenges gaining app adoption from its carrier base, especially when new carriers frequently entered their network. With this functionality, the LSP could get bids from app users and carriers given link access.

2. Decide on transparent or non-transparent bidding

Regarding freight bidding options, companies and carriers may select either transparent or non-transparent bidding, being:

• Transparent bidding refers to an auction in which all participants can see what price carriers are bidding or the carrier’s rank in the auction. 
• Non-transparent bidding refers to an auction in which participants are not given any feedback until a decision is made.

Approach example

Because Ontruck provides spot regional transport services, our software uses non-transparent bidding to ensure customers get the most accurate price evaluations from carriers. This bidding arrangement avoids situations where the low-rated or low-quality carriers can target the lowest possible bid to win the job. Price is just one metric Ontruck Transport Services uses to weigh bids, ensuring customers receive services from affordable and quality carriers.

However, from a carrier perspective, a transparent bidding process can be valuable for those with more time to evaluate costs, risks, and benefits. Transparent bidding is useful because carriers receive instant feedback on their bids by revealing the carrier’s rank or comparative bid price. This can be beneficial because it gives carriers operating on lower margins a bidding advantage.

3. Configure bids with a starting price

How do companies know the right price to start freight bidding? Companies with a fixed budget may select an initial freight bid to reflect the starting range they can afford. However, at times, it may be advantageous to configure bids without a starting price to receive unbiased market feedback in markets with little data or pricing availability.

Example

After substantial testing, we implemented a starting bid in Ontruck’s software to reflect an optimal price for a potential carrier. This price reflects a situation where the driver is close to the pick-up area, has the precise time available, is interested in completing the route, and would be willing to accept the starting price. With this capability, our goal is that 50% of all journeys be accepted at the starting price point.

How is the starting price calculated? Ontruck uses a Cost Engine AI algorithm that estimates the variable cost of the journey based on contributing factors. Our approach is to make an aggressive starting price that acts as an anchor for prospective carriers.

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4. When necessary, it’s still okay to negotiate

Though most companies want to minimise freight rate negotiations, there are instances where a fleet agent may want to submit a counteroffer. This tactic is especially valuable when other conditions are at play, such as a low number of carriers bidding for the job.

Example

For example, Danish shipping conglomerate Maersk implemented a chatbot to facilitate negotiations on behalf of a fleet agent with a potential carrier. This solution saves dispatchers valuable time while creating opportunities for carriers and companies to negotiate a winning bid.

In the case of spot transport purchasing, and especially urgent transport, we recommend accepting negotiated bidding from carriers. For example, one of our clients, a multinational logistics company, configured their software to include the option of bidding, withdrawing bids, and sending new bids to accommodate these situations when they arise.

5. Automate carrier selection

The final strategy organisations should consider is how to evaluate the bid information, as companies may trigger automated actions based on the bid insights they receive. There are some important questions that companies might want to ask themselves, including:

• Is the lowest bid the best bid?
• Are there other factors that might be more important than price? (e.g., quality rating, urgency, etc.)
• Are there enough bids to make a sound decision?
• Alternatively, are there too many bids, but none of them meet the target price?

Example 

For example, at Ontruck Transport Services, once freight bidding reaches a certain price-to-margin threshold, it triggers automatic carrier selection. After this occurs, the system stops receiving bids and selects a carrier based on rating, commitment, and potential empty kilometres.

If none of the bids reach the required threshold, the operations team will be alerted to intervene and manage the job manually. Testing configurations like automatic carrier selection is necessary to determine whether the process supports the company's objectives.

Freight Bidding Can Be Simple – With the Right Software

Automated freight bidding can result in reduced costs, increased efficiency, and enhanced market intelligence. This complex instrument requires complex configuration based on an organisation’s specific industry, carrier segment, and purchasing strategy.

At Ontruck AI Tech, we understand firsthand the challenges that LSPs face. As a company with its own transport division, we developed our tools to improve efficiency and productivity in our bidding processes. Today, we utilise that knowledge to enable customers to achieve the same outstanding results using our technology.

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References:

• Financial Times. (2023, August). Multinationals turn to generative AI to manage supply chainshttps://www.ft.com/content/b7fafed2-9d00-49b0-a281-c1002b139865‍
• Ti Insights. (2023, December). EUROPEAN ROAD FREIGHT TRANSPORT MARKET FORECASTS FOR 2023, 2024 AND 2027 https://www.ti-insight.com/wp-content/uploads/2023/12/ERFT-Market-Forecasts-2023-2024-and-2027-WP.pdf