Freight procurement is the process by which a shipper invites carriers to bid for its routes, compares the bids and awards the contracts. It is also called freight sourcing, or a freight tender. Freight procurement software runs this process online, in place of emails and spreadsheets.
A shipper sends goods on the same routes again and again. A route between two places, such as Haridwar to Jaipur, is called a lane. Large shippers usually agree on a rate for each lane for a year or six months, with one or more transporters. Those rates then go into the transportation management system, which uses them to book each trip. Sometimes the shipper also needs a truck for a one-off load, outside its contracts. Then it buys a single trip from a digital freight marketplace or a transporter, at that day's rate. This is called spot buying.
The software runs the tender in steps. The shipper lists its lanes, with the expected number of trucks each month and the kind of truck needed. It invites transporters, and checks their documents, such as their GST registration and the number of trucks they own. The transporters enter a rate for each lane. Many shippers then run a reverse auction, an auction in which the price goes down instead of up. For a fixed time, each transporter sees only its own rank, and may lower its rate to move up. The lowest bidder is usually called L1, the next one L2, and so on.
The lowest bid does not always win the whole lane. Say a detergent company with a factory in Haridwar runs its yearly tender for 40 lanes, and invites 25 transporters. For the lane to Jaipur, which needs about 30 trucks a month, the first bids range from ₹46,000 to ₹55,000 a truck. In a 30-minute reverse auction, the lowest bid falls to ₹42,500. The software shows that last year's rate was ₹44,000, and that this L1 transporter delivered late on 12% of its trips last year. So the logistics manager gives 60% of the lane's trucks to L1, and 40% to L2, which agrees to ₹43,200. If L1 runs short of trucks, L2 can take the load. The contracts go out for signature, and the new rates go into the TMS on 1 April.
Freight procurement is a special case of procurement in general. Companies buy most other goods and services through procure-to-pay software. Freight needs its own tools because it is bought lane by lane, and its rates change with the price of diesel. Many contracts therefore include a rule that raises or lowers the rate when the diesel price moves. After the trips, freight bill audit checks each bill against the contracted rate. The roles of shipper and transporter are explained on the page on freight brokers and forwarders.