A recent article by FreightWaves’s John Paul Hampstead examines how “mini-bids” have become more popular in last mile procurement, as the traditional RFP process becomes quickly outdated. A mini bid is an agile, dynamic procurement processes, often focused on a shipper’s existing network, that can be used to support new lanes, problematic lanes with limited capacity, and volume fluctuations.
Traditional RFPs are a lengthy process and leave shippers, forwarders and ocean carriers paying inflated rates during soft markets. There’s no guarantee of capacity later in the year and carriers are often left scrambling for spot rates and trucks during competitive market conditions. They can walk away from or deprioritize their contractual commitments during times when spot rates are most competitive, in order to maximize their profits. As John states, “for a typical shipper, their true contract rate is actually between 3% and 21% higher per mile.”
While it would be ideal for shippers to “hug the market” and pay contract rates during a soft market / strategically procure spot rates during the more competitive times of the year, this dynamic change in strategy has normally been cost and resource prohibitive. On demand procurement requires a large level of administrative capacity and clean processes between procurement and operations teams that is often difficult to achieve at scale.
Fortunately, newly developed software (such as Pactum’s AI rate automation tool are enabling and accelerating digital procurement strategies for the largest shippers in the world. Historically spot rate negotiation would take time for a dispatcher and a carrier to agree on, often with an urgency premium built into the price. Pactum’s AI-powered chatbot identifies when a spot rate is needed and – with no human intervention on the end of the shipper – procures a rate within four minutes of communication with the carrier. This rate is then fed back into the shipper’s rate repository, helping to ensure the quoted rate is the same one the shipper will end up paying at the time of invoice.
This automation removes the people-heavy barrier to entry for mini-bids and lessening the need for large comprehensive annual or quarterly RFPs. It also results in more consistent cost control as spot rates procured by the bot are on average 29% lower than those procured manually by dispatchers. By leveraging past rates, contract rates and market conditions, Pactum’s bot can understand what a competitive short-term rate is and ensure the last-minute negotiation is within an acceptable threshold for the service being rendered – something a human dispatcher is often not able to evaluate on-the-fly.
Representation of how AI Can Change the Spot Rate Process.This new technology is also beneficial in developing and furthering strategic relationships with top carriers. Some procurement professionals are concerned that moving away from annual contracts will mean more shallow and transactional relationships with their vendors. With digital tools, procurement teams are able to manage relationships in bulk as the technology allows for diverse procurement models that can increase flexibility and resilience in the shipper’s supply chain. Digital processes for spot rates also help to close the feedback loop between on-the-ground operations teams and procurement teams, empowering both teams with data on vendor performance, market rates and capacity availability. In the case of Pactum, carrier performance can be used to funnel volume to the highest performing carriers for each specific move.
The increase in adoption of digital freight procurement tools significantly mitigates the operational burden of running mini bids on a more regular cadence. These mini-bids can help shippers regain control of their last mile costs during volatile times of peak season price increases and uncapped supply chain expenses. By implementing a more dynamic and responsive procurement strategy for last mile inland moves, procurement teams can ensure their goods will continue to move despite market conditions while maintaining carrier relationships and controlling annual logistics spend.
