Rate Management System
By Aadithya V, Chief of Staff, Freightify ( Formerly known as FreightBro)
The most precious asset today is information. In the logistics industry, the freight rate is the most important piece of data on which the industry operates. The industry is under constant pressure to reduce its operating costs, and of late, has been switching to digital technology for this purpose.
The large forwarders in the sea freight industry still use spreadsheets to share complex rate contracts with shipping vessels. Unlike the Air Freight industry (IATA), the sea freight industry is not mandated to follow structured information flow between the concerned parties. On average, the cost to quote makes up 40% of the overall revenue. Statistics show that invoicing errors accounted for around $ 680 million in 2016.
The rate management system is a piece of software used by logistics companies to better understand and manage their freight rates. In the earlier days, this used to be done manually. After the introduction of computers, freight forwarders started using excel sheets to record the freight data. However, input was still by hand and errors and loss of data was commonplace. Today large logistics service providers use this software to share their rates with liners and airlines and make them available to their own organizations as well. Rate management systems also help shippers and importers to manage their freight conditions with logistics providers.
Finally, it is all about improving the customer experience. E-forwarding is set to become the new normal in the coming decade. Digital forwarders and marketplace startups like Flexport, FreightOS, Beacon, FreightHub, ZenCargo are charging up to eat a large chunk of the traditional forwarder’s market share. The logistics industry is at an inflexion point and needs to go digital to survive. Liners like Maersk have switched to digital to provide spot rates and are cancelling long-term contracts to balance supply-demand fluctuations. On the other hand, traditional forwarders, digital forwarders and marketplaces are not equipped to handle the new method of rate procurement from liners. The logistics industry is fast hurtling towards live rates and another Expedia like disruption is waiting to happen.
The freight forwarders are facing a dinosaur moment in their evolution. Those who adapt smartly will exist, others will simply perish. Global freight multinationals have already started ploughing in capital to acquire or establish startups that will help them in their digital transformation journeys. Look at the examples of Kuehne Nagel’s Sea Explorer, DHL’s myDHLi, Expeditors’ acquisition of Fleet, Agility’s Shipafreight, etc. Online marketing giants like Amazon and Alibaba are venturing into digital supply chain platforms as well. The thrust is to improve customer experience to compete with recent digital players.
Given this backdrop, the freight forwarders are at crossroads right now. Only 50% of them use IT systems or software for their day-to-day order booking activities. The tools used are legacy TMS, either developed in-house or purchased off-the-shelf for managing operations, finances and management of post-booking workflow. The surge in digital transformation and the rapid rise of e-forwarding will leave freight forwarders with no option but to invest in digital procurement technology to stay relevant.
The use of manually maintained excel sheets is no longer tenable as it is time-consuming, involves manual labour and is prone to errors. Maintaining excel files is also an arduous task. Shipping companies are increasingly seeking technical assistance for the collection, comparison and management of freight rates by opting for freight rate management systems or eProcurement systems. These systems should accommodate freight rates, freight quotes as well as spot prices and daily price enquiries.
Apart from standard rate management systems, cloud-based web applications are also a good alternative for rate management. Shippers and importers can use this for tendering, rate management, price updates etc. The data needs to be entered only once and minimal efforts are needed to maintain the same. Shipping companies can also obtain and store spot prices from their peers for the purpose of comparison and optimisation of freight purchase rates. Ideally, freight forwarders should look at convenient rate management solutions that allow for easy onboarding and require minimum maintenance. The times are changing quickly and this industry has to evolve soon to keep pace with the dynamically changing business landscape.
