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The procurement of transportation services is an important task for shippers because of the need to control costs at the same time as providing high service levels. When shippers with goods and/or materials to transport seek transportation services from outside companies they typically put out a request for quotes from a set of carriers. They then assign contracts based on negotiated service charges. This process is similar to a simple sealed-bid auction in which each bidder submits a sealed bid for a single item. In the past, when shippers needed to procure transportation services for a set of distinctive delivery routes (called lanes) they would obtain quotes for each lane individually and repeat the simple auction process for each lane. Alternatively, they might negotiate for bundles of lanes with a single carrier at a time. However, in the last few years software has been developed to allow shippers to make all lanes available for bidding simultaneously and to allow carriers to simultaneously bid upon combinations of individual lanes.This method of awarding contracts, conventionally called a combinatorial auction, has been reported to result in significant cost savings for shippers. Our research examines the benefits of combinatorial auctions primarily from the carrier's perspective. Preliminary findings, based on a simple simulation model suggest that benefits for carriers can also be significant. Song and Regan 2

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The bid valuation and construction problem for carriers facing combinatorial auctions for the procurement of freight transportation contracts is very difficult and involves the computation of a number of NP-hard sub problems. In this paper we examine computationally tractable approximation methods for estimating these values and constructing bids. The benefit of our approximation method is that it provides a way for carriers to construct optimal or near optimal bids by solving a single NP-hard problem. This represents a significant improvement in efficiency. In addition, this method can be extended to many other applications.