Transportation Management System Explained: How to Simplify Shipping and Increase Margins

Shipping has never been more complex—or more expensive.

According to the Annual State of Logistics Report, transportation alone costs U.S. businesses over $1.04 trillion annually (or 10.4% of total revenue), and for consumer packaged goods companies, transportation costs typically add up to 6% to 8% of their revenue.

That’s a massive chunk of margin gone before your product even hits the shelf.

And with rising freight rates, tighter delivery windows, and more carriers to juggle than ever, warehouse managers and logistics teams are under constant pressure to deliver faster, cheaper, and more accurately.

That’s where a Transportation Management System (TMS) steps in.

A TMS gives you visibility and control over every shipment, from the moment it leaves your dock to the second it arrives at the customer’s door. 

And when integrated with your Warehouse Management System (WMS), a TMS doesn’t just help you move freight. 

In this article, we’ll break down how a TMS increases your margins by reducing costs and improving on-time delivery while minimizing manual work. We’ll cover how a TMS compares to a WMS and what features to look for if you’re trying to simplify your freight workflows and protect your bottom line.

What Is a Transportation Management System (TMS)?

A Transportation Management System (TMS) is software that serves as mission control for freight operations, giving you a single platform to manage carriers, routes, rates, and documentation across all transportation modes.

A TMS can do more than just track trucks. Selected correctly, the software connects every touchpoint in your shipping process, from initial order planning to final delivery confirmation. When an order drops into your system, your TMS automatically determines the most cost-effective way to ship it based on your business rules, carrier contracts, and delivery requirements.

After spreading for decades across enterprise-level, Fortune 500 companies and shippers, TMS solutions are being adopted over time by more and more 3PLs, mid-size warehouses, and e-commerce brands seeking to stay competitive.

Modern TMS platforms handle everything from carrier selection and rate shopping to load optimization and freight audit. They integrate with your existing systems—WMS, ERP, order management—to create a seamless flow of information that eliminates manual handoffs and reduces errors.

How does a TMS system work?

At its core, a TMS operates through four key stages:

• Planning & Optimization: The system analyzes incoming orders and automatically builds optimal shipment plans. It considers factors like delivery dates, carrier rates, capacity constraints, and service levels to create the most efficient routing strategy.
• Execution: Once plans are approved, the TMS executes by allocating loads to carriers, generating shipping documents, and sending advance ship notices. It communicates directly with carrier systems to book capacity and confirm pickups.
• Visibility & Tracking: Real-time tracking gives you eyes on every shipment. The TMS pulls data from carriers, IoT devices, and integration partners to show exactly where freight is and whether it’s on schedule.
• Settlement & Analytics: After delivery, the system handles freight audit and payment, matching carrier invoices against contracted rates. Built-in analytics help you spot trends, measure carrier performance, and identify cost-saving opportunities.

Some advanced TMS solutions use AI and machine learning to recommend smarter routes and flag exceptions before they affect customers.

Who uses TMS systems?

A TMS is valuable for any business that regularly ships freight, but it’s especially critical for:

• Distributors and Wholesalers: Operating on razor-thin margins, these businesses use TMS to consolidate shipments, optimize multi-stop routes, and reduce per-unit shipping costs.
• 3PLs and Freight Brokers: These companies live and die by transportation efficiency. A TMS helps them manage multiple clients, coordinate shared fleets and facilities, and maintain the margins that keep them competitive.
• Retail & E-commerce Businesses: As customer expectations for fast, free shipping continue to rise, retailers rely on TMS to manage parcel and LTL shipments while maintaining profitability.
• Manufacturers: With raw materials coming in and finished goods going out, manufacturers use TMS to coordinate complex inbound and outbound logistics while managing tight production schedules.

And the data backs up the value. According to a study by ARC Advisory Group, companies that use TMS solutions report an average of 8% reduction in transportation costs and a 10% improvement in delivery times.

Importance of a TMS in Modern Supply Chains

The days of managing transportation with phone calls and spreadsheets are almost over. Modern supply chains move too fast, ship too much, and face too many variables for manual processes to keep up.

Consider what your transportation team deals with daily: fuel surcharges that change weekly, capacity crunches during peak seasons, new compliance requirements, and customers who expect Amazon-level visibility into their shipments.

Without a TMS, you’re fighting these battles with outdated weapons. With a TMS, you can better manage five challenges of the moment that will only grow more pressing.

1. Cost Control in Volatile Markets

Freight rates don’t stay still. According to DAT Freight & Analytics, spot van rates experienced a 30-cents-per-mile swing in just four weeks during 2020, demonstrating the extreme volatility logistics teams face. A TMS gives you the agility to respond by automatically routing shipments to the most cost-effective options based on real-time market conditions.

And the savings are significant. According to consulting firm BDO USA, a TMS can deliver savings of 5 to 15% from optimized lanes and modes compared to the market. That’s real money flowing back to your bottom line.

2. Meeting Rising Customer Expectations

Modern customers expect real-time visibility into their shipments, proactive communication about delays, and accurate delivery windows. A TMS provides the tracking and communication tools that turn shipping from a frustration-inducing black box into a competitive advantage.

3. Managing Complexity at Scale

More SKUs, more locations, more carriers, more regulations—manual processes that worked at 100 shipments per month break down at 1,000. A TMS scales with you, automating decisions that would otherwise require an army of logistics coordinators.

4. Data-Driven Decision Making

Every shipment generates data, but without a TMS, that intelligence sits trapped in carrier portals and email chains. Modern TMS platforms aggregate this information into actionable insights. You can spot carriers that consistently deliver late, identify routings where you’re overpaying, and predict capacity needs before they become emergencies.

5. Stronger Carrier Relationships Through Data

A TMS transforms how you work with carriers. By tracking metrics like on-time delivery rates, damage claims, and dwell times, you build a performance database that turns contract negotiations from guesswork into strategic discussions.

You can reward top performers with more volume and address issues with underperformers before they impact customers. This data-driven approach to carrier management often leads to better rates and service levels across your entire network.

Challenges of Buying and Implementing Transportation Management Systems

A TMS can bring serious efficiencies, but like any technology investment, it comes with its own set of challenges.

And if you go in blind, these roadblocks can stall your implementation, frustrate your team, and erode ROI.

Here are some of the most common issues companies face when adopting or upgrading a TMS:

1. High Upfront Investment

Some TMS platforms, especially enterprise-level solutions, come with a steep price tag.

Licensing fees, IT infrastructure, training, and implementation can quickly add up. For smaller logistics operations or 3PLs with tight margins, the initial cost can feel like a barrier, even if long-term savings are clear.

That’s why cloud-based or modular TMS options like Da Vinci are becoming more popular. They offer scalability without requiring heavy upfront capital.

2. Integration Complexities

A TMS rarely operates in isolation. It needs to talk to your WMS, ERP, order management system, carrier portals, and more.

But messy data, legacy systems, and a lack of standardization can slow or even derail integration efforts.

If you don’t have strong IT support or a vendor whose plug-and-play integrations are tested, you risk delays and data silos that limit your TMS’s potential.

3. Change Management

A TMS changes how your teams work—what they touch, when they act, and how they make decisions.

If people aren’t properly trained or don’t buy into the process, you’ll see slow adoption, errors, and inefficiencies.

You want to choose a TMS that balances automation with user-friendliness, and to roll it out with clear training, documentation, and leadership support.

4. Over-Engineering the Solution

Some companies choose TMS platforms with every feature imaginable, such as route optimization, dock scheduling, freight audit, and AI-powered forecasting, only to use a fraction of them.

The result? A bloated system that’s hard to learn, expensive to maintain, and overwhelming for users.

Start with what you need now and ensure that your vendor can scale you into more advanced capabilities once your team is comfortable and your workflows are stable.

5. Incomplete Visibility

Not all TMS platforms provide full end-to-end tracking, especially if your freight passes through multiple carriers or modes.

If your system doesn’t capture all delivery milestones or allow for real-time exception alerts, you’re still flying blind when delays hit.

Look for a TMS that offers multi-carrier tracking, real-time visibility dashboards, and flexible alert systems that keep you (and your customers) informed.

All challenges we’ve highlighted are solvable with the right partner, the right rollout strategy, and a clear understanding of your shipping needs. And the payoff is a faster, smarter, more resilient logistics operation.

Key Features to Look for in a Transportation Management System

Transportation impacts every part of your operation: Late deliveries disrupt production schedules. Damaged goods create customer service nightmares. Inefficient routing inflates inventory carrying costs.

So, a TMS shouldn’t just optimize transportation, but create ripple effects of efficiency throughout your entire supply chain. 

Not all TMS platforms will do that at the level and price you want. Some are built for enterprise shippers with complex global networks, while others are lightweight tools geared toward e-commerce fulfillment. The right fit depends on your business model, freight volume, and level of control you want over shipping.

Still, there are a few non-negotiable TMS features every warehouse, 3PL, or logistics team should look for:

1. Multi-Carrier Rate Shopping

Your TMS should connect to multiple carriers—parcel, LTL, FTL, regional, international—and return rates in real time and automatically select the most cost-effective and service-appropriate option for each shipment.

Look for tools that let you set business rules: cheapest option by default, fastest for certain SKUs, or preferred carriers by destination.

2. Real-Time Tracking and Visibility

You shouldn’t have to chase down carrier portals to find out where a truck is.

Your TMS should give you full visibility into shipment status, delivery milestones, and exceptions in real time.

Even better is the ability to send proactive alerts to customers and internal teams to reduce WISMO (Where Is My Order?) inquiries.

3. Integration with WMS/ERP Systems

Your TMS needs to sync with the rest of your tech stack, especially your Warehouse Management System and ERP.

This ensures accurate order data flows in, and updated shipping info flows back out—without manual entry or errors.

Da Vinci, for example, offers built-in integration between WMS and TMS so that inventory, orders, and freight data stay in lockstep.

4. Automated Documentation

From Bills of Lading (BOLs) and shipping labels to customs declarations and freight audit reports, a good TMS should handle it all.

Automation ensures faster processing and compliance while freeing up your team from repetitive tasks.

5. Freight Auditing and Reporting

Errors in freight billing are more common than you’d think. A TMS that includes automated freight audit tools can flag overcharges, incorrect accessorial fees, or late delivery penalties—so you don’t leave money on the table.

Plus, you get detailed reporting to track KPIs like cost-per-shipment, carrier performance, and on-time delivery rates.

6. Scalability and Modularity

Your shipping needs today won’t look the same a year from now.

Choose a TMS that can scale with your business, adding new carriers, lanes, modes, or users without requiring a complete overhaul.

Modular platforms like Da Vinci’s allow you to start with core capabilities and layer on more advanced features (like AI-powered optimization or cross-docking tools) when you’re ready.

7. User-Friendly Interface

Powerful doesn’t have to mean complicated.

If your team can’t use the system easily or needs weeks of training to get started, it’ll slow you down. Look for a clean interface, intuitive workflows, and clear dashboards.

8. Carrier Performance Management

It’s not enough to know who’s cheapest. You also need to know who consistently delivers on time, who damages freight, and who racks up detention fees.

A strong TMS should include carrier scorecards and analytics to help you make smarter, long-term shipping decisions and negotiate better contracts.

9. Customer Communication Tools

Many modern TMS platforms now support branded tracking pages, automated delivery notifications, and even self-service portals.

If you’re a 3PL or ship directly to end customers, these tools can help you improve CX without increasing manual workload.

Choosing a TMS isn’t just about ticking boxes. It’s about finding a system that fits your operation today and helps you grow tomorrow, without unnecessary complexity or cost.

TMS vs WMS: What’s the Difference?

If you’re already using a Warehouse Management System (WMS), you might be wondering: Do I really need a TMS too?

It’s a valid question, especially if you’ve already invested in streamlining your warehouse operations. While a WMS helps you optimize everything inside your facility, a TMS takes over once your product is packed and ready to move.

In other words, they solve different problems at different stages of the supply chain.

What a WMS Handles

A Warehouse Management System is designed to manage inventory, workflows, and labor inside your warehouse. It tells you where stock is located, how to pick and pack orders efficiently, and ensures fulfillment runs smoothly from receiving to shipping.

What a TMS Handles

A Transportation Management System picks up where your WMS leaves off. It helps you plan and execute outbound shipments: choose the right carrier, get the best rate, generate labels and BOLs, track freight, and analyze transportation costs.

Here’s a quick breakdown to highlight where the two systems differ:

Why You Need Both

A WMS ensures inventory accuracy, efficient picking, and fast fulfillment.

But without a TMS, you’re flying blind once the order hits the dock.

You won’t have real-time visibility into delivery status. You can’t optimize carrier selection or manage freight spend effectively. And customer experience takes a hit when tracking data is late or missing entirely.

Together, these two systems create a closed-loop logistics ecosystem: one that gives you end-to-end control, from shelf to doorstep.

Da Vinci offers a fully integrated TMS module within its WMS platform. It’s designed for warehouse teams and 3PLs that want to simplify shipping without leaving the WMS environment—reducing handoffs, errors, and delays.

Future of Transportation Management Systems

The world of transportation is shifting fast. Between supply chain disruptions, rising fuel costs, evolving customer expectations, and the boom in e-commerce, logistics teams are being asked to do more with less.

And TMS platforms are evolving just as quickly to keep up.

Here’s where transportation management is headed—and what future-ready TMS solutions are starting to look like:

1. AI-Powered Route Optimization

Artificial intelligence is reshaping how freight is planned.

Modern TMS platforms are beginning to use predictive algorithms to choose the best routes based on traffic, fuel prices, weather conditions, and carrier performance.

Some solutions learn over time, helping you avoid historical bottlenecks, improve ETAs, and automatically reroute shipments when delays are expected.

2. Dynamic Pricing and Spot Market Integration

Carrier rates are fluctuating more than ever. Future-ready TMS systems are integrating with real-time spot markets, allowing shippers to respond to market swings instantly.

Instead of relying on outdated static rates, you’ll be able to dynamically price and book based on live capacity and demand.

3. Sustainability Tracking

More shippers and 3PLs are being asked to report on their carbon footprint and environmental impact. So, it’s a certainty that the next generation of TMS platforms will include carbon tracking to monitor emissions by lane, mode, or carrier, and make greener shipping choices.

A study shows that over 50% of global product-centric businesses plan on investing in transportation sustainability tools.

4. Deeper Automation and Decision Support

Automation won’t stop at labeling and booking.

Expect to see more decision support systems within TMS platforms—tools that flag shipments likely to miss SLA, suggest consolidations, or even simulate how shifting lanes would affect your budget.

The goal is less manual planning, more proactive control.

5. Embedded Customer Experience Tools

Shipping visibility is now part of the brand experience.

Advanced TMS platforms will offer embedded tools like branded tracking pages, SMS delivery alerts, and delay notifications, turning logistics from a cost center into a customer retention lever.

6. Tighter Integration with Warehouse and Order Systems

The future of logistics software is connected.

We’re already seeing a shift toward unified platforms that handle WMS, TMS, OMS, and analytics in one environment—eliminating silos and accelerating workflows.

Da Vinci is already ahead of the curve here, offering a modular, integrated WMS + TMS platform that syncs inventory, orders, and freight without needing multiple vendors or disjointed systems.

Simplify Your Freight Workflow with Da Vinci’s Integrated TMS.

A modern Transportation Management System helps you control costs, improve delivery performance, and gain the real-time visibility today’s customers and carriers demand.

When it’s fully integrated with your WMS, you get something even more powerful: end-to-end control over your supply chain, from order to delivery.

That’s what Da Vinci’s TMS module delivers.

Built as part of Da Vinci’s WMS, it gives warehouse managers and 3PLs one platform to manage inventory, orders, and freight without the friction of disconnected systems.

No spreadsheets, double data entry or missed handoffs.

Whether you’re looking to reduce freight spend, automate shipping workflows, or build a smarter carrier strategy, Da Vinci’s TMS is designed to help you do it faster and more profitably.

Ready to take control of your shipping? Request a demo to see how Da Vinci’s integrated TMS can simplify your freight workflow and drive your margins up.