Understanding the value of freight bidding remains elusive for many modern supply chain managers and leaders. Freight bidding processes are generally reserved for when negotiating contractual terms with a given carrier or logistics service provider (LSP).
However, the ability to apply and leverage modern freight data and real-time insights has transformed the process. And now, supply chain leaders have an opportunity to rethink their freight strategy throughout the year and take advantage of mini-bids using real-time freight data.
Unfortunately, mini-bids are another often misunderstood aspect of modern supply chain management. Let’s take a closer look at mini-bids and why a supply chain leader would wish to conduct a mini bid to maintain control over freight spend.
A primer on mini-bids
Mini-bids are comparable to freight contracts. Remember that a traditional bid involves an assumption of volume and rates given to a specific shipper, forwarder, or broker, provided all parties within the arrangement can live up to its terms. While that sounds complex, it has a simple implication. So long as the LSP or carrier has available capacity, that LSP or carrier will be able to offer a discounted rate to the respective freight management party.
However, not all carrier drivers work under non-compete contracts and are effectively kept from jumping ship to take advantage of the spot market. However, carriers do have some drivers that are willing to stay the course provided added incentives are in the equation. For this reason, it may become necessary to renegotiate the terms of an existing current transportation contract for a given duration. This is where mini-bids come into play. Mini-bids are short-term revisions to current transportation contracts. And they typically last between three and six months.
Reasons to consider new bidding strategies
The reasons to consider new freight bidding strategies are simple. The contracted carrier can no longer meet its obligation. And while some shippers might want to take legal action and other steps to force carriers’ hands, if the capacity is unavailable, it is just that. Therefore, the options are simple. Freight management parties either place a tender for the spot market or consider an alternative bidding strategy. For example, engaging in freight bidding processes to secure more mini-bids can have an effect on reducing total freight spend. Consider this. The rates paid within a mini-bid may be slightly higher than contracted freight within a traditional freight bidding process. However, they are lower than the generalized spot market rate. According to Supply Chain Management Review:
“Technology tools play an important role in this process but are only as effective as the engineer using them. In-house engineers who engage with the technology infrequently will struggle to get the most out of these systems compared to engineers who work with it every day and fully understand their capabilities and limitations.”
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Tips to secure the best rates for mini-bids
Freight management parties must also work to ensure the mini-bids received prove their value. In other words, engaging in a new freight bidding process in the hopes of getting mini-bids does little good if the freight management party does not understand what to really expect when carriers and LSPs submit proposals. As a result, it helps to follow these tips:
- Aggregate freight data.
- Analyze data to recognize trends across modes and freight management parties.
- Identify markets where trucking capacity is the tightest.
- Automate reporting functions to understand changing freight market conditions.
- Submit RFPs to LSPs in tight markets.
- Build a short business case for what you’re willing to pay based on relevant market data.
- Use data analytics, such as FreightWaves SONAR’s Lane Scorecard to better define term-length for mini-bid contracts.
- Continue to monitor spot market conditions to know when other bidding practices may be better suited.
Make the best use of mini-bids by using an advanced freight forecasting platform
Mini-bids allow freight management parties to renegotiate freight contracts to reflect the actual market rate. Regardless of what existing contracts dictate, the supply chain only has so much available freight capacity at any given time. Therefore, mini-bids can help shippers test new carriers, add new trade lanes to the portfolio, expand access to new supplier networks, and more. Regardless, any freight bidding process requires informed decision-making. And using an advanced freight forecasting platform can provide the source of data needed to make the best decision. Request a SONAR demo to get started.