Maximizing Efficiency Through Transparent Freight Auctions
Many shippers evaluating a Digital Freight Matching platform debate whether to conduct transparent freight auctions where prospective bidders see the current low bid before placing their own bid. At the same time, some carriers express reluctance at participating in transparent freight auctions for fear of driving down freight rates. In this second in a series of “Best Practices for Optimizing Your Digital Freight Matching (DFM) Platform,” we examine bidder behavior patterns and consider how both shippers and carriers can maximize efficiency by understanding these patterns.
Lowest Bid Wins Most Often, But Not Always
When participating in a transparent bidding process, many carriers incorrectly conclude that the lowest price always wins. It is true that in this era of tight capacity and rising freight rates, transportation decision makers face pressure to save money when possible to mitigate the impact of rising rates on their companies’ bottom lines. We find that shippers award upwards of 80% of loads to the lowest bidder. The second lowest bidder wins 14% of loads and 4% of loads go to the third lowest bidder. Factors that we have found offset the lowest price include carrier ‘quality’, convenience of award aggregation and consideration of alternative suppliers.
Lowest Bid Usually Arrives Last
In only 13% of cases, the lowest bid arrived first. In more than five times as many cases (66%), the lowest bid arrived last. In transparent bidding on loads with no ‘maximum bid’ or ‘I’LL TAKE IT’ price set for the load, bidders typically start the bidding high and subsequent bidders hone in the current market price.
Last Bid Most Likely Winner
Among awarded loads that received three or more bids, shippers awarded 9% to the third to last bidder, 19% to the second to last bidder and 57% to the last bidder. Bid sequence appears to matter even among low bids. We observe that a load has a 41% likelihood of being awarded when the low bid is the first bid. That likelihood nearly doubles to 77% when the low bid is the last bid.
Recommendations for Shippers
Simply put, we highly recommend that shippers conduct transparent freight auctions rather than obscuring the current low bid from prospective bidders. In 87% of cases, the lowest bid arrives after the first bid, meaning that most bidders review the first bid and decide to place a lower bid. To not disadvantage first bidders, we enable all bidders to edit their bid should they wish to “sharpen their pencil” in response to subsequent bids. Further, since the first bid is seldom the lowest bid, we advise shippers against awarding a load after receiving a single bid but instead allowing enough posting lead time to produce multiple bids.
Recommendations for Bidders
Bidders also benefit from transparent freight auctions. First, by showing prospective bidders the current low bid, we save bidders time by enabling them to forgo bidding on loads for which they cannot be price competitive. Second, by showing bidders the auction expiration deadline in combination with the current low bid, we enable bidders who can be price competitive to submit their bid near the auction’s conclusion. To bidders who greatly desire a particular load, we recommend submitting the low bid late in the auction, resulting in a nearly four-in-five chance of winning.
To learn more about how PostBidShip’s Digital Freight Matching Platform can help you optimize your spot market freight bidding, please contact firstname.lastname@example.org.