Are Reverse Auctions the Best Way to Move Freight?

Many shippers have moved to a reverse auction system of awarding their available freight. For those that don’t know this is basically an E-Bay system that goes to the lowest bidder instead of the highest. While this can reduce shipping costs, is it really a good system to get freight moved?

The answer is no….while this does reduce shipping costs it also seriously effects service. Shippers continually want the lowest price but are then upset when service suffers. You can’t have it both ways. When all the margin is taken out of the load by pitting carriers against each other nobody wins…..carriers add man hours by trying to find the “cheapest” truck and shippers suffer when the cheapest truck breaks down, falls off the load, or delivers late. Carriers are competitive and want to win the load….for those who have ever bought anything at an auction…being the highest bidder (or in this case the lowest) feels good. That good feeling lasts only as long as it takes for the shipper/receiver’s phone call wondering where the truck that was supposed to be there at 2pm is at and looking for somebody to blame. The blame falls directly on their shoulders. By continually driving carriers prices down you are forcing carriers to work with little or no margin. This starts a vicious cycle. Carriers can’t continue to work that cheap forcing some out of the market. Less trucks on the road means higher costs to the shipper and that means higher costs to the consumer.

While the reverse auction works to lower short term costs it is not the answer in the long-term. The long-term answer is a good working relationship between carrier and customer. While there are still those customers out there they are disappearing as fast as the carriers that have to compete in the reverse auction process.