Freight negotiations, such as mini-bids and traditional annual contracts, help shippers and freight brokers secure more capacity and keep freight spend under control. However, not everyone understands the value of looking beyond the typical annual contract. According to an August 2019 survey of shippers, conducted by FreightWaves, when the spot market shifts by 15% or more, two-thirds of shippers move freight into the spot market. This reflects a need to secure capacity due to drivers fleeing to a market that offers better pay. Here is a short review of mini-bids.
Reasons to consider new freight negotiations
- Freight market volatility drives new freight negotiations, including mini-bids, if volatility lasts at least 30 days before entering a new bidding process.
- While it’s easiest to see the value when spot rates increase, mini-bids can also help to avoid overpaying on contracts during a falling market.
- The need to scale capacity pushes mini-bid activity.
- New demands from customers, including faster or lower-cost shipping (if not free), may drive a mini-bidding process.
- Carrier and logistics service provider changes could drive mini-bids, such as the sudden shift of rates for a specific lane or mode.
- Carrier and logistics provider changes may further precipitate the elimination of whole lanes due to limited demand, like the increased rate of blank sailings that occurred in 2020.
INFOGRAPHIC: How Mini-Bids aid in Freight Negotiations
The advantages of mini-bids to help manage freight spend
Using mini-bids helps shippers and freight brokers to:
- Find and source more trucking capacity.
- Pay a lower rate than the current market rate for a shorter period.
- Expand the mix of freight management parties used.
- Reduce overhead by gaining an understanding of how freight should move within the spot market and other contracts.
- Pay a lower rate than existing contracts when better rates exist within the true market rate – the spot market itself.
Carriers, 3PLs, brokers and forwarders may also engage in mini-bids to reap similar benefits. For example, carriers can apply mini-bids to:
- Increase the number of shipper-customers.
- Maintain accountability among shippers by diversifying the number of shipper-customers.
- Attract drivers at rates that are still competitive to the spot market or more valuable than the spot market.
- Work with other carriers to form consortia and partnerships with like-service providers.
What data should be considered before moving into the spot market?
Freight management parties need to know these core data values before shifting to the spot market:
- The extent and remaining duration of existing contracts.
- Available capacity across specific and all lanes within those contracts.
- The available capacity within the spot market lanes.
- The rate expectations for week, month and year as compared to the same period of the past year.
- The overall flow of freight and how disruptors, like hurricanes, are expected to affect capacity.
- Whether specific lanes favor the carrier or shipper – using SONAR Lane Signal to see how much favor each possesses.
Ultimately, everyone in logistics is watching out for number one. And staying competitive will make or break all businesses. Mini-bids allow companies to adapt to volatile markets without abandoning all hope and using only a spot market freight management strategy.
Yes, there will be times when spot freight is the only way to go for a specific shipment. But with the advancements in freight forecasting and demand sensing, larger supply chain management parties should never go for a spot-only approach.
That would open the door to grave risks and leave little recourse for those that find their level of service lacking.
Fortunately, FreightWaves SONAR provides insight into freight data needed to make an informed decision and maximize the value of mini-bids regardless of whether it’s a bull or bear market.