Freight Mini-Bids: What’s Their Purpose and When to Use
The biggest constant in the freight industry is change and the freight mini-bid has become the tool of choice by logistics professionals as a way to navigate the volatility found in the dynamic freight market that thrives at the intersection of supply and demand.
The volatility in the freight market itself is a result of economic demands, weather, natural disasters, labor disputes, restriction of equipment and now world health pandemics. Each example drives a disruptions in the critical supply chains of companies around the world that must be managed for peak performance.
The events can either constrain freight markets or produce situations of excessive freight capacity.
Whatever the situation, neither is healthy for those whose well-being depends upon a well-balanced supply and demand market, as each takes time to correct and balance themselves in the complex freight networks operating in the global economy.
Even in the best of times the freight market follows a cyclical pattern , as is illustrated through Coyote Curve pictured below.
Navigating the "normal" freight cycle that is driven by economic boom or bust is difficult enough, but in today's closely tied globalized supply chains has made managing them exponentially more difficult.
All said, in today's world a balanced freight ecosystem that is without disruptions has become more a fairy tale and a short-term unicorn event.
As a result, logistics managers are constantly navigating the peaks, valleys and disruptions to be successful for their company and in their career.
There are a number of strategies shippers can take to better position themselves for the freight capacity required for the year against the backdrop of the coming challenges. We address many of the trends and strategies each year in our annual Logistics and Supply Chain Trends and Beyond Article.
One of those strategies for shippers to help in their challenges is a freight mini-bid, or as some call it, a mini-RFP.
Definition of a Freight Mini-Bid
Essentially, the mini-bid is a scaled down RFP that is laser focused on a set of challenging freight lanes.
Mini-bids are done to address either internal or external changes that have become an issue for capacity demands or pricing challenges for a set of freight lanes that were not present at the time of the full freight RFP (request for proposal).
Top 3 Advantages of Freight Mini Bids to Manage Freight Capacity and Budget
Pay a lower rate than the current market rate for a shorter period.
Expand the motor carrier base utilized on a freight lane.
Improve the balance of contract and spot utilization in a given freight lane.
When Shippers Use the Mini-Bid
The mini-bid can be used to address a short term project or known promotional surge or to bridge a shipper’s requirements until the next annual RFP.
Conducting mini-bids is a method for shippers to best align their freight requirements, as conditions change for them in the market.
Condition changes can be either internally and / or externally driven, with a listing of examples of situations where executing a mini-bid makes the most sense:
- New origin - destination pairing that was not in the original request for proposal (RFP).
- An increase in volumes that has demand outpacing the supply provided through the origin RFP.
- Higher than acceptable service failures on a particular lane that would indicate it is time to go back to the drawing board on the capacity solutions on the freight lane.
- Tender rejection rate is too high on a particular freight lane or set of lanes, which is driving a higher than normal number of shipments being put to the freight spot market..
- A laser focused approach on key shipping lanes to rebid to better match market conditions, thus avoiding the opening of the entire listing of lanes a company has to bid.
- Overall network of freight has changed offering up opportunities to provide freight providers two-way traffic on various origin-destination zip pairings.
- Overall freight market conditions are changing in a way that may draw some concern on pricing and capacity availability in important freight lanes.
As the above illustrate, the theme of mini-bids is to use them in opportunities that are caused by the following:
- A change in freight market dynamics specific to a shipper’s business.
- When additional freight capacity demands have changed from the initial RFP.
- Areas within the supply chain where service level problems continue to be elevated.
In summary, a freight mini-bid is used to address problematic lanes within a company’s freight network for service and / or pricing reasons, with the pricing goal of avoiding the highly volatile freight spot market at all costs.
Conclusion to Freight Mini-Bids
Mini-bids are not new to the freight industry, but they are expected to become more commonplace as freight market volatility is expected to be more the norm.
And for those new to freight contracts understand the annual agreements that come out of a freight RFP are not binding documents, but instead a general agreement that shippers plan to tender a certain volume of freight that carriers will move at an agreed-upon rate when the carrier has equipment in the area.
What all the above means is carriers are not bound to pick-up and deliver your freight and the freight mini-bid solves the problem.
The last point to make is that while this article is focused on times when freight capacity is at its tightest, min-bids can also be used when there is excessive freight capacity and your company is looking for lower priced options on freight lanes your incumbents choose not to lower their pricing expectations on high cost freight lanes that have the most impact to your company's bottom line.
So, with all the above in mind we wish you the very best on your journey to solve the freight capacity, service and price equation for your company. If along the way you find you need additional capacity options in intermodal, truckload or LTL, please do not hesitate to reach out to InTek Freight & Logistics.
For more on obtaining the best freight rates we recommend the following articles from the InTek Learning Center:
- How-to Negotiate & Execute Best Freight Rates: Comprehensive Guide
- How to Negotiate & Manage a Competitive Freight Rate RFP
- Freight Contract Rates vs Spot Rates - Comprehensive Guide