Transportation management system

A transportation management system (TMS) is a category of logistics software used to plan, execute, and optimize the movement of goods across supply chains. TMS platforms are commonly used to manage freight transportation activities such as shipment planning, carrier selection, route optimization, freight auditing, tracking, and performance analysis.¹

Transportation management systems are typically part of a broader supply chain management technology stack and often integrate with enterprise resource planning (ERP), warehouse management systems (WMS), carrier networks, and logistics marketplaces.²

TMS platforms are used to coordinate freight movements across different transportation modes, including truckload, less-than-truckload (LTL), parcel, rail, ocean, and air freight. The software helps organizations reduce transportation costs, improve shipment visibility, automate logistics processes, and optimize freight operations.³

Common capabilities provided by transportation management systems include:

• Shipment planning – determining how goods will be transported based on cost, service level, and capacity.
• Carrier procurement and rate management – managing carrier contracts, freight rates, and capacity sourcing.
• Route optimization – determining efficient routes for shipments or fleets.
• Load building and consolidation – combining shipments to maximize equipment utilization.
• Execution and dispatch – managing the booking and execution of shipments with carriers.
• Freight visibility and tracking – monitoring shipment progress and status updates.
• Freight audit and payment – verifying freight invoices and managing payment processes.
• Analytics and reporting – measuring logistics performance and identifying opportunities for cost savings.⁴

Transportation management systems are used by a variety of organizations involved in freight transportation and supply chain operations.

Shippers

Manufacturers, retailers, wholesalers, and distributors use TMS platforms to manage the outbound and inbound transportation of goods within their supply chains. These organizations typically use TMS software to optimize shipping routes, manage carrier relationships, and reduce transportation costs.⁵

Freight brokers

Freight brokers act as intermediaries between shippers and motor carriers. Brokers use transportation management systems to source carrier capacity, negotiate rates, coordinate shipments, and manage communication between supply chain participants.

Third-party logistics providers (3PLs)

Third-party logistics companies provide outsourced logistics services for shippers, including freight brokerage, warehousing, and transportation management. TMS platforms allow 3PL providers to manage multiple customers, coordinate shipments, and track logistics performance across large networks of carriers.

Motor carriers

Trucking companies and other transportation providers may use transportation management systems to manage dispatch operations, route planning, shipment visibility, and fleet utilization.

Transportation management systems are typically categorized based on the primary users and operational workflows they support.

Shipper-focused TMS

These systems are designed primarily for manufacturers, retailers, and other companies that ship goods. They typically emphasize network optimization, route planning, freight cost management, and global logistics planning.

Brokerage and 3PL TMS

TMS platforms designed for freight brokers and third-party logistics providers focus on load management, carrier sourcing, dispatch operations, and freight billing workflows associated with brokerage operations.

Carrier or fleet TMS

Some transportation management systems are designed for trucking companies and fleet operators. These systems often integrate dispatch management, fleet tracking, driver scheduling, and maintenance planning.

Cloud-based TMS

Modern transportation management systems are commonly delivered as cloud-based software platforms (software as a service, or SaaS). Cloud deployment allows organizations to access logistics data in real time, integrate with external supply chain systems, and scale operations without maintaining on-premise infrastructure.⁶

Transportation management systems play a central role in modern logistics operations by enabling organizations to coordinate increasingly complex supply chains. As global trade and e-commerce have expanded, TMS platforms have become an important component of digital supply chain infrastructure, helping companies manage freight capacity, transportation costs, and shipment visibility across global logistics networks.

A Transportation Management System (TMS) is a subset of supply chain management concerning transportation operations, which may be part of an enterprise resource planning (ERP) system.

A TMS typically acts as an intermediary between an ERP or legacy order processing and warehouse/distribution module. In this setup, the TMS Planning Module evaluates both inbound (procurement) and outbound (shipping) orders, providing the user with suggested routing solutions. The user reviews these suggestions and selects the most reasonable option, which is then passed to the transportation provider analysis module. This module determines the best mode of transportation and the most cost-effective solution. Once the optimal option is chosen, an electronic load tendering and track/trace system is used to execute the shipment through the selected carrier. The TMS also supports freight audit and payment processes. Integration with ERP systems (once orders are transformed into shipments) and sometimes with Warehouse Management System (WMS) programs are also commonly linked to ERP.

These systems have been offered with different types of licensing arrangements. The four main offerings are:

1. On-premises licensing (traditionally purchased license)
2. Hosted licensing (remote, SaaS, Cloud)
3. On-premises hosted licensing (a blend of 1 and 2)
4. Hosted – TMS free of licensing (same as 2 but free with no license requirements)

Additionally, some software providers were either acquired or merged with supply chain management consultancies and started offering shippers "blended" managed and software services as an outsourced process. Primary Tier 1 TMS providers are still independent, carrier and 3PL neutral, and ERP neutral. While ERP providers are moving to improve their on-premises transportation management offerings by adding TMS modules to their existing, implemented base, the advent of Software-as-a-Service or "SaaS" delivery resulted in a surge of emerging TMS providers.

Transportation management systems manage four key processes of transportation management:

1. Planning and decision making – TMS will define the most efficient transport schemes, according to the given parameters, which have a lower or higher importance of various factors according to the user policy: transport cost, shorter lead-time, fewer stops possible to ensure quality, flow's regrouping coefficient, etc.
2. Transportation Execution – TMS will allow for the execution of the transportation plan, such as carrier rate acceptance, carrier dispatching, and EDI.
3. Transport follow-up – TMS will allow the following any physical or administrative operation regarding transportation: traceability of transport events by event (shipping from A, arrival at B, customs clearance, etc.), editing of reception, customs clearance, invoicing and booking documents, sending of transport alerts such as delay, accident, non-forecast stops.
4. Measurement – TMS have or need to have a logistics key performance indicator (KPI) reporting function for transport.

Various functions of a TMS include:

• Planning and optimizing terrestrial transport rounds
• Inbound and outbound transportation mode and transportation provider selection
• Management of motor carrier, rail, air, and maritime transport
• Real-time transportation tracking
• Service quality control in the form of KPIs (see below)
• Vehicle Load and Route optimization
• Transport costs and scheme simulation
• Shipment batching of orders
• Freight Negotiation
• Cost control, KPI (Key Performance Indicators) reporting and statistics
• Freight Audit
  • Typical KPIs include, but are not limited to:
    1. % of On-Time Pick-Up or Delivery Performance relative to requested
    2. Cost Per Metric – mile; km; weight; cube; pallet
    3. Productivity in monetary terms, e.g., cost per unit weight or shipping unit
    4. Productivity in operational terms, e.g., shipping units/order or weight/load

However, all the above logistical functions need to be scrutinized as to how each parameter functions.

Gartner predicted the global transportation management system market to grow 60% from $1.3 billion in 2019 to $2.1 billion in 2024.⁷

Some transportation management systems support a layered freight procurement strategy sometimes described as integrated freight orchestration. In this hybrid logistics approach, freight is managed across three levels:

• Contracted base freight – long-term agreements covering stable, predictable volumes.
• Pre-negotiated spot capacity – optional agreements that provide flexibility without relying on open market spot prices.
• On-demand spot freight – urgent, short-notice shipments where speed is prioritized.

By coordinating these layers within a single platform, companies aim to balance cost efficiency with service reliability. The method has been applied in sectors such as automotive manufacturing to reduce emergency shipments, improve on-time delivery, and optimize overall transport capacity.

This concept emphasizes incorporating and restructuring resources, skills and functional competencies inside the company to address external issues. These capabilities significantly impact a firm's total efficiency and capacity.[1]