Freight Procurement — Definition + Process Explained

What is Freight Procurement?

Freight procurement refers to the process of choosing, getting, and managing modes of transportation to move materials or products from the place of origin to the place of destination. 

The process can be tough due to multiple factors such as time constraints, locations, and the availability of transportation. 

Freight procurement can be divided into three kinds: subcontracting, direct procurement, and third-party logistics. For subcontracting, a company contracts another party to be responsible for transporting its products.

In direct procurement, a company selects a certain carrier or a group of carriers to transport its materials or products. The last kind, third-party logistics, refers to the way in which companies use independent freight brokers or forwarders to look for carriers that can meet their requirements to transport their products. 

Freight procurement is an integral part of business as it helps companies achieve their goals when it comes to the timely delivery of their products and eliminating the need to use multiple carriers just to transport their products. 

Furthermore, freight procurement can assist in identifying opportunities for cost-savings in shipping or transporting their products. 

Freight Procurement Process Explained

Understanding the freight procurement process helps businesses better manage their shipping needs. Whether you’re working with direct carriers or third-party providers, this step-by-step method ensures that goods are delivered on time and in the most cost-effective way possible. Here’s how it typically works:

1. Planning and Preparation

The process begins by identifying what needs to be shipped, how often, and where it’s going. This includes noting the size of shipments, any special handling requirements, and delivery deadlines. It’s also important to set a budget and decide whether transportation will be arranged directly or through a third party. Once this information is clear, businesses prepare shipping schedules or request forms.

2. Requesting and Evaluating Offers

Next, companies reach out to transportation providers and ask for quotes or proposals. These documents explain the company’s shipping needs and allow carriers to offer their prices and services. Once all the proposals are received, the business compares them based on cost, service quality, reliability, and timing.

3. Selecting Carriers and Finalizing Agreements

After comparing the offers, the best carriers are selected—not just based on price, but also on their ability to meet delivery expectations. The business then agrees on the terms, such as shipping rates and service levels, and signs a contract to make the arrangement official.

4. Managing the Shipments

Once everything is set up, shipments begin. At this stage, the company works with carriers to ensure goods are picked up and delivered as planned. Tracking tools and regular updates help make sure things stay on schedule. If there are any delays or issues, they are handled quickly to avoid major disruptions.

5. Reviewing Invoices and Making Payments

When the deliveries are complete, the carriers send invoices for their services. The company checks the details to make sure everything matches the agreed terms. If all is correct, payments are processed. Any billing issues are resolved before finalizing the transaction.

6. Analyzing Results and Making Improvements

After the shipment cycle is finished, it’s important to review how things went. This includes looking at delivery performance, costs, and whether the carriers met expectations. These insights help improve future procurement decisions and strengthen relationships with trusted providers.

The Role of Freight Procurement in Supply Chain

Freight procurement is a part of the supply chain. Its process is about purchasing materials or products from suppliers. This can happen through negotiations or auctions

In today’s supply chain, freight procurement ensures that the materials or products arrive on time and in the right amount of orders. This process saves a lot of money and makes deliveries faster. It also makes sure supplies are there when needed, which helps businesses stay competitive and continue their operations.

The Three Types of Freight Procurement

Freight procurement is crucial as companies need to ensure that their products are timely delivered to their customers while also taking into account how they can identify opportunities to reduce transportation costs. 

There are three primary types within procurement which are: transportation, warehousing, and storage. Each category encompasses different aspects of the procurement process, which are the following:

1. Transportation procurement

This involves establishing contracts with carriers who are responsible for moving goods from one location to another. This category is characterized by its swiftness, ensuring expedited movement of items. However, the convenience of speed may involve higher costs.

2. Warehousing procurement

Warehousing procurement entails partnering with providers of storage facilities. These facilities house goods until they are ready for delivery to their designated destinations. While this approach might introduce a relatively slower pace due to storage duration, it generally proves to be a more economical option compared to swift transportation.

3. Storage procurement

This type focuses on collaborating with suppliers of materials or equipment essential for business operations or production. This is integral to securing the resources needed to facilitate the manufacturing or operational aspects of the company.

Furthermore, the choice of procurement type depends on the specific requirements, time sensitivity, and cost considerations of the company. By strategically leveraging these categories, businesses can navigate the procurement landscape effectively, optimizing their supply chain and customer satisfaction.

Practical Tips For Freight Procurement

The following are the practical tips that you can use to improve your procurement goals or plans:

1. Ensure that you fully understand your product and the market

When you send your request for shipping, you need to be clear about what things you’re sending. Give all needed details to the shipping company, and fill in everything on the Safety Data Sheet. Keep private things confidential, but share as much as you can for an accurate price and safe shipping.

Additionally, it also helps your shipping process if you know your market well. That means understanding things like the capacity of the materials that can be shipped and the costs. You want a good balance between quality and price, so there are many shipping options. Knowing the market helps you pick the right shipping company.

2. Give all the important details to your transportation provider

From the transportation perspective, uncertainties mean more risks. However, when they know everything about what you’re shipping, then there will be fewer risks. 

Thus, you need to give all the needed information about your products such as the cost, how it’ll be loaded, when it will be loaded, and what equipment is needed. If you share lots of details, you can get a good price and great service.

3. Map out your schedule strategically

The schedule you pick is really important for the shipping and procurement process. When you decide the days and times for shipping, it affects how much you pay and how well products get delivered. For example, Mondays are important. Consequently, bad weather such as heavy rain or storms matters too. Thus, plan your schedule well to make sure your shipping happens on time.

4. Make sure that you have a backup plan

Since unexpected things can happen, it’s smart to have a backup plan for your shipping and procurement process. If something goes wrong or there’s a sudden problem, you’re ready. You know what steps to take, what resources to use, and who to call. For example, if there’s an issue, you might store a lot of things in special containers until the situation is fixed.