Reducing uncertainty in freight transportation procurement

Abstract

Securing sufficient truckload transportation capacity is a challenge for most shippers. The dominant design currently used across North America is to run an annual reverse auction collecting rates from carriers on each of their freight lanes (origin-destination pairings) and then feeding these rates into the shipper’s transportation management system (TMS), which then uses a routing guide to determine which carrier to tender a load to when a particular shipment materialises. Unfortunately, the routing guide frequently fails. This results in the shipper having to use backup carriers or the spot market, thereby incurring much higher rates. This paper explains why the current dominant design arose in the first place and why it is no longer sufficient. Four promising practices that can improve the transportation procurement process for shippers, carriers and brokers are presented and discussed: Data-driven analysis, transportation portfolio management, dynamic contracting and continuous procurement. These practices are meant to complement the current procurement methods in order to reduce the risk and level of uncertainty for all parties by making the procurement process more dynamic and responsive to the market.