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Pareto Principle in Freight Forwarding

Over 100 years ago, Italian economist and sociologist Vilfredo Pareto noticed a few recurring distribution patterns, which led him to discover that 80% of results come from 20% of causes. This phenomenon was called the Pareto Principle or the ‘80/20 Rule‘. The 80/20 distribution patterns are so universal, that they apply practically everywhere, for example:

  • 80% of sales revenue comes from 20% of clients;
  • 80% of traffic comes in 20% of the time;
  • 80% of healthcare costs are generated by 20% of patients.

There could be slight variations in the percentage ratio, but there are always main factors which affect the result more than the others. Pareto discovery is extremely important, and the analysis of Pareto’s cause and effect can dramatically increase business productivity. You can read more about applying the Pareto principle in business here.

 

Pareto Rule in Freight Forwarding

 

How to apply the Pareto Principle to international logistics? Following the statistical analysis of the global trade volumes, it is easy to see that the same distribution pattern, discovered 100 years ago in Italy, works for the shipping market.

Let’s take a look at ocean freight in containers. The data is consistent. Basically, Vilfredo Pareto predicted the container volume distribution pattern 60 years before the container was even invented!

  • 80% of container volume is shipped from 20% of ports;
  • 80% of container volume is shipped by 20% of companies.

The data pattern applies to Russia, China, Brazil, and other countries. It remains similar in case import and export. You will find the same distribution patterns in FCL and LCL, in rail, road, sea and air freight.

In some cases, the Pareto distribution chart can be even more dramatic. Let’s take a closer look at the busiest world trade route –  Far East Asia imports to Europe. There are approximately 150 active ports in the Far East and Southeast Asia. However, only 16 of them (roughly 10%) generate 80% of volume:

ports

 

How to Leverage the 80/20 Rule?

 

Freight forwarding is a very complex business. There are hundreds of thousands of possible port pairs, multiple container types, millions of local exceptions. In addition, freight rates change frequently. There are also numerous surcharges applied on top of freight rates, and special premium/discount levels are negotiated for most of the customers. All of that results in millions of freight quotes full of special notes and exceptions, which are very difficult to prepare, manage, and keep track of without the right software in place.

At Quotiss, we tackle the main problem of the industry from a different angle: instead of digitizing the enormous complexity of freight rates, we dramatically simplify the freight rate management process, reducing the number of variables in the equation.

Freight rate complexity can be reduced by 99%, following the data patterns discovered by Pareto 100 years ago.

Quotiss sales automation software generates 100% accurate quotes in seconds. The software is user-friendly and tailored to the freight forwarding business. It brings order and structure.

 

Would You Like a Quick Start with Quotiss?

 

Click here to register your company. We’ll activate your company’s profile and help with the initial settings and user onboarding. You can start uploading your freight ratesheets and quoting freight from Quotiss on the same day we sign the deal.