Why should shippers benchmark freight rates?
Driving cost savings in today’s fast-moving supply chain industry has become quite a challenge in light of unforeseen events, fluctuating rates and ever-changing supply-demand dynamics. For you to better manage costs, determine the best possible trade lanes for each shipment and drive savings, freight rate benchmarking has become a necessity.
Irrespective of whether you are a big or a small shipper, benchmarking rates is one practice that can not only save you money but can also help you gain valuable insights, understand competitive threats and identify new business opportunities.
What is freight rate benchmarking? How does it work?
In simple terms, freight rate/cost benchmarking is comparing the price you are paying for your shipment with what your competitors are paying for a similar shipment. The key is to have access to precise and reliable market rates which can then help you identify the best opportunities and aid your decision making.
The process reviews your freight rate history along with the carriers used, with the present-day market rates for the concerned trade lanes, helping you understand the direction in which the freight market is moving, foresee the peaks and troughs and evaluate your position.
Benefits of freight rate benchmarking:
Better negotiate freight rates
The freight market is highly volatile. Rates tend to vary to a great extent even within the same shipping lane and lack of transparency often invites hidden, unnecessary charges which silently bite into your profit. However, when you have access to benchmarked rates, you are in a better position to negotiate freight quotations or fix a target rate for your freight forwarder or carrier. This helps you make sure that you aren’t being fooled into overpaying for your shipment.
Thorough analysis and valuable insights
Once you start benchmarking your freight rates with the help of a system, over time it offers you a thorough analysis of both, spot rates as well as long-term contracts. A comprehensive view of all the average rates, then allows you to gain a deeper understanding of how competitive the rates offered by your carrier are, as against the actual freight rates.
Increased control over costs
The more you understand the pattern in which your costs are incurred, the better you can control them. By understanding average rates for each lane and being constantly aware of prevailing rates, you can take steps to not only stabilise but also reduce surcharges. Needless to say, the benefit of getting competitive rates further gets extended to your customer as well.
What’s more? You can apply such benchmarking across your freight business units and in return, you can better evaluate your contracts, carrier performance and drive substantial savings. There are indeed some Freight Indexes that help you benchmark freight rates for major ports across the world like World Container Index, Baltic Index, and other Freight Indexes. Keeping an eye on them during your freight procurement process can help you save a lot.