What are tenders? The transportation contract

Introduction to tender definition 

According to the Cambridge Dictionary, tender meaning is "a written or formal offer to supply goods or do a job for an agreed price". The word is commonly associated with the public sector, but it is also an important business concept in the transport sector. Here we tell you what tenders are and how they work in the logistics industry. 

Public or governmental administrations indeed use tenders as competitions to award public works, projects, or services to companies. However, tenders are also auctions in which goods or services are sold to whoever offers the most money. Or the other way around. Contractors seeking a service advertise it in open competition to choose the lowest price among all bidders.

Traditionally, procuring entities have created this system intentionally. This creates a competitive scenario in which bidders donot have access to the bids of other competitors. Whoever sets the lowest price wins the award. It is known as a "blind auction". It is a method for contractors seeking the lowest bid. However, low-cost services arenot always a guarantee of quality.

For this reason, there are more and more tenders where the quality of the service is essential and will be reflected in the price quotation. Thus, a win-win philosophy is generated. Both parties value each other in commercial terms and achieve mutual benefits.

What is a tender in the freight transport sector?

Tenders in freight transport have a long history. Companies all over the world treat tenders as a basis of their operations. They use this tool to secure massive capacity for their expected volume.

They typically involve lengthy processes that require upfront investment to set a competitive price and submit a potentially winning proposal. However, companies that organise tenders have realised that this is the best way to reduce transport costs in the long run.

The tender pricing strategy will be based on the RFQor Request For Quote (RFQ) study. This allows the supplier to set the bid price at which it is willing to provide the necessary service. However, the RFQ may have a preliminary step known as Request For Information (RFI).

RFI - Request for information

Companies often use requests for information when looking for new suppliers. They want to make sure that only the best suppliers participate in tenders. They cannot afford to make a mistake in choosing the right carrier. 

That's why they first ask for information such as financial data, stability, staff, etc. Sometimes they ask you for a letter explaining why they should invite you to their highly valued tenders. 

RFQ - Request for quote or tenders 

Then there is the request for quotation, often called a tender. You can award volume for the next 3 months, 6 months, or, more commonly, 1 year or more.

The RFQ or invitation to tender mainly contains thefollowing information:

     - The type of tender.

     - The type and subject of the contract.

     - Deadlines and timetable for the tender and the award of the contract.

     - Tender price document.

     - Preliminary information, specifications and requirements.

     - Procurement regulations. 

Once the RFQ has been analysed, the bidder must also consider three elements:

    - Direct costs. 

    - Indirect costs. 

    - Profit margin. 

It is vital for suppliers to have bid pricing strategies. If the procuring company has the opportunity to choose between more suppliers and get competitive prices, suppliers should play their cards with a winning strategy. 

Also, the supplier participating in the tender should have a well-defined proposal. It must be of high quality and convincing to have the opportunity to differentiate itself from the competition and demonstrate that it is the best option to provide the service. Your proposal's added and perceived value is also important, so techniques such as incorporating a detailed implementation plan can bring it closer to success.

Let's take a tender example:

 The European textile market leader has invited morethan 600 companies to its tender. Usually, these are the old suppliers, with only a few new ones who were persistent enough to submit bids. 

The rules are general, nothing extraordinary. Thesupplier knows what the volume of each lane is because the tender holder provides this information:

    - 1000 lanes to quote.

    - There is a national and an international section. 

    - Type of equipment, transit time, warning time. 

    - If there are quotations or not. 

    - If there is pallet exchange or not. 

The shippers are smart. They do the first round to choose the 2 or 3 best in each line among the 600 suppliers. But before the second round, they will do interviews if they are unsure about the supplier. There may be a third round simply because shippers are greedy and need to ensure that they have squeezed a "lemon" in eachlane. This is the standard procedure they have always done. 

At this point, we come to the final. The suppliers are chosen, the volume is awarded, and the backups and the backups of the backups are selected. 

But... this is not enough. Let us tell you about it.

How do companies protect themselves from a rejection of tenders? 

There are many ways. 

The main one is to consider the fuel index. If the fuel price goes up, the price in the lane goes up. Another option is to have a backup plan such as the spot option. Shippers must constantly monitor current trends and changes in the market. If truck demand increases, they must be prepared to have more rejections in their allotted lanes. 

It can be a huge waste of time and money, such as overpaying spot trucks because we all know that express service is an expensive service.

Important factors in transport tenders.

Sustainability

We should mention sustainability because some shippers tend to choose "green" suppliers. For example, giving the option to move goods by rail or ferry helps to save the planet. 

Trucking companies with gas or other cleaner fuel trucks may have more business opportunities from companies that see sustainability as a key value.

Price

But we can all agree on the most critical factor: Price. It almost always prices.

Another example. 

Let's take the Barcelona - Berlin route with 600 loads a year. It's not a "big" amount, but imagine you have 1000 routes to quote. It is evident that the price here is fundamental. 

This is the basics of logistics and why freight forwarding exists. The tenders lower the price because they have secured capacity in the long term. Therefore, they are resilient to market changes. If they overpay one day, they still earn their margin the next day. Of course, it does not always mean that they deliver on time, but it is important for shippers. 

In contrast, transport companies with their own assets are not as flexible. They cannot afford to miss opportunities that appear in the market. Therefore, they tend to "reject" loads that are not good enough.

Transport E-Tenders

Tendering systems have processes that can be digitised to make them more efficient. For this reason, digital platforms and freight exchanges leverage new technologies to take advantage of tenders.

However, E-tennders today are mainly used to compete in the spot market. They are an auction-type system that moves away somewhat from the traditional bidding of the transport business. 

Currently, the model may work for some shippers, but we know logistics likes to be repetitive.

Tips for a tender manager 

To get the most out of tendering operations, we recommend the following tips:

Getting the "when" right is essential.

As we pointed out earlier, tenders are characterised by long-term contracts under conditions that are usually closed. Therefore, it is best to carry them out in times of stability and a favourable context.

You need solid partners, not the lowest price.Make your calculations

Invite as many suppliers as you want, but ensure you know what you are looking for. Collaborate and never compromise on quality. Interviewing to find out more information and get to know suppliers is the bestway to understand their business.

Make the guidelines clear from the start.

Make sure you have a clear objective and know your target price. Clearly conveying your requirements will help suppliers understand your needs, and you will receive more proposals. 

Narrow down the network of suppliers you want toinvolve.

Selection processes can be lengthy and complicated because of the amount of information to be compared to make the right decision. It is preferable to select those you already know or have references, even if it is a smaller network.

Identify the most difficult lanes. 

Study previous competitions and keep the"old" competitions in your archive. You will learn from them.

Tips for quoting if you need to tender a contract.

In short, here are a few tips that will help you get closer to winning a tender: 

Study the invitation to tender correctly. 

To participate in a tender in which you will offer your services, you must know what is being asked for and consider all the requirements exactly. Ensure you understand the product to be transported, the transit time,and the truck type requirements. If something is unclear, you should ask.

Companies also ask about the daily capacity you can provide, so you should analyse it before giving a random number. Some customers prefer quotes for just a few lanes, and others like you to quote for all routes. 

 Participate in feasible tenders. 

You need analytical skills and basic knowledge to understand the market. Analyse the competition's bid to be stronger in yourproposal or decide whether it is better to withdraw in time. 

Reserve your efforts for those bids where you believe your company can win or that it fits the application. So, don't waste your time if you are not sure it will be good for your business or if you think the service is not consistent with your objectives.  

Good tender participation requires extra effort and is only worth investing in when there is a real opportunity. 

Be clear in your proposal and communicate your value well.

Explain the reason for the price thoroughly. Justify it clearly with the characteristics of your service, your added value and the benefits you can offer. Also, present a price breakdown verified by your own suppliers or subcontractors if you have them. Due to market changes, it is vital to have the most up-to-date information possible. 

Along with the price quote, itis very important to highlight the quality of your service and any added value you can provide that sets you apart from your competitors. Whether it is something obvious or just the smallest detail.

Do you need a quotation, or are you looking for loads for your trucks?

At Tennders, we are dedicated to the management of European freight transport. Our mission is to provide the best balance of technology and people to create efficient supply chains.

We simplify the way shippers, carriers and brokers connect. And we increase the visibility of digital and sustainable opportunities.

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