LOGLogistics & transportationStop 5 of 10
Carrier selection & freight tenders
Running freight tenders, choosing carriers lane by lane, and balancing contract rates against the spot market.
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Freight is one of the biggest things a manufacturer or retailer buys, so it’s procured like any other category, through periodic freight tenders (RFPs):
- Prepare lane data: for each lane, its expected volume, equipment type, service needs and seasonality.
- Invite carriers to bid rates per lane: per trip, per tonne or per kilometre.
- Evaluate bids on price, capacity, transit time, past performance, safety and compliance, not price alone.
- Award lanes, often with a primary and a backup carrier, so a rejected load has somewhere to go.
- Manage performance with a carrier scorecard: on-time pickup and delivery, tender acceptance rate, damage claims, billing accuracy.
Two kinds of rate coexist. Contract rates are agreed for a year or a season, giving price stability but depending on carriers honouring them. Spot rates are bought load by load on the open market: sometimes cheaper, often much dearer in peak seasons. If carriers keep rejecting contracted loads when the market tightens (low tender acceptance), the company ends up buying on the spot market at peak prices, so a cheap contract rate that isn’t honoured isn’t cheap at all.
Larger shippers use optimization to award lanes, letting carriers bid on bundles, such as a round trip that gives them a return load, and choosing the combination of awards with the lowest total cost within capacity and risk rules.
Words to use
- Freight tender
- A competitive bidding process for carrier rates and capacity on a set of lanes.
- Tender acceptance rate
- Share of offered loads a carrier accepts at the contracted rate.
- Spot rate
- A one-off market price for a single load, often volatile.
Effective cost per load
The contract rate is only part of the price. If a carrier rejects some loads, those go to the spot market; if it is late, there are costs downstream.
Spot rate on the lane: ₹52,000. Cost of each late delivery: about ₹5,000 (expediting, penalties, lost sales).
| Carrier X | Carrier Y | |
|---|---|---|
| Contract rate | ₹40,000 | ₹42,000 |
| Tender acceptance | 70% | 95% |
| Expected freight per load | 0.7 × 40,000 + 0.3 × 52,000 = ₹43,600 | 0.95 × 42,000 + 0.05 × 52,000 = ₹42,500 |
| On-time delivery | 85% | 95% |
| Expected late cost per load | ₹750 | ₹250 |
| Effective cost per load | ₹44,350 | ₹42,750 |
The carrier ₹2,000 cheaper on paper costs ₹1,600 more per load in practice.
Routing guides
Award each lane to a primary carrier with a target share, plus one or two backups, and write the order into the routing guide the TMS follows. Review acceptance and performance monthly, and shift volume between carriers based on the results, within the contract.
Bundles and round trips
A carrier who wins both Pune → Hyderabad and Hyderabad → Pune can run round trips and avoid empty returns, so it can price the pair lower than the two lanes separately. In a combinatorial tender, carriers bid on bundles, for example ₹50,000 for both directions against ₹30,000 and ₹28,000 bid separately, and the shipper chooses the set of bids that covers all lanes at the lowest cost. Choosing the winners is an optimization problem in its own right, solved with integer programming.
What to ask in a tender
- Lane volumes with seasonality, equipment needs and service requirements.
- Rates, fuel adjustment terms and accessorial charges (waiting, extra stops, loading help).
- Capacity commitment by lane and season.
- Safety, insurance, permits and compliance documents.
- Tracking capability and data sharing.
The market moves in cycles
Truck freight markets swing between periods of spare capacity, when carriers compete and spot rates fall below contract rates, and tight periods, when demand outruns trucks and drivers, spot rates jump and contracted carriers reject loads to chase better-paying spot freight. Contracts are tested in tight markets. Tender acceptance is the clearest signal of how a market is turning.
Fuel clauses
Diesel is one of the biggest costs in road transport, so contracts often link rates to fuel prices: a base rate at a reference diesel price, adjusted by an agreed formula when the official price moves beyond a band. This keeps rates fair to both sides without renegotiating every time fuel changes.
Being a shipper of choice
Carriers prefer customers who load and unload quickly, give accurate and early load information, offer steady volumes and round trips, and pay on time. Those shippers get higher acceptance and better rates in tight markets. Cutting waiting time at your own docks is often worth more than winning another rupee per tonne in a tender.
Combinatorial auctions
Caplice and Sheffi (2003) describe how large shippers use optimization-based procurement: carriers submit bids on individual lanes and on packages, with conditions such as minimum or maximum volumes, and the shipper solves for the cheapest set of awards that covers every lane, while respecting business rules such as a maximum number of carriers per lane or a minimum share for incumbents. The method lets carriers express their real economics (backhaul, network fit), which lowers total cost.
Vetting carriers
Price means little if a carrier is unsafe or non-compliant. Checks include vehicle permits and fitness, insurance cover, driver licensing and training, GST registration and compliance, safety records, and increasingly fleet age and emissions. Digital freight platforms and brokers widen the pool of carriers, but the shipper remains responsible for whom it lets carry its goods.
Interview kit
Practise it out loud
Answer each question yourself before opening the model answer.
I’d run freight procurement as a structured tender: share accurate lane volumes and requirements, collect carrier bids, evaluate on rate, capacity, transit time and past performance, and award primary and backup carriers per lane, using optimization for bundled bids on larger networks. After award, a scorecard on on-time performance, tender acceptance, damage and billing accuracy keeps carriers honest, because a contract rate that’s rejected in peak season pushes you onto expensive spot rates.
Why is tender acceptance rate so important?
Because a contract only helps if the carrier accepts the loads. When carriers reject loads in tight markets, shippers pay spot rates that can be far higher. A slightly higher contract rate with a reliable carrier often costs less in total.
How can shippers get better freight rates without just squeezing carriers?
Give accurate volume forecasts, offer balanced lanes and round trips so carriers avoid empty returns, load and unload quickly to cut waiting time, pay on time, and commit consistent volume. Carriers price in uncertainty and inefficiency, so removing them lowers rates sustainably.
Connected stops
Where this idea feeds in, or gets its inputs from.
Sources and further reading
- Caplice, C. & Sheffi, Y. (2003). Optimization-based procurement for transportation services. Journal of Business Logistics, 24(2), 109–128.
- Chopra, S. & Meindl, P. Supply Chain Management: Strategy, Planning, and Operation. Pearson.