Freight Rate Management

by Marcin Zarzecki, CEO of Quotiss

This is the second part of the article, which covers the numerous errors in freight ratesheets distributed by the shipping lines. In the first article, I illustrated that there is a clear lack of unified standards across the carriers. Even within the same shipping company different offices use different formats when it comes to preparation and distribution of the freight ratesheets.

In this post, I will dig deeper into the discrepancies we’ve witnessed during our freight simplification journey at Quotiss. I will not give the names of the carriers for obvious reasons, but I can assure you that there is no single carrier in the world that has their rates structured to the optimal level.

So far, we’ve covered the most common discrepancies:

• Rate structure

• Delivery method

• Local exceptions

Now let’s look at other examples when things go bad because of the lack of standardization and proper tools.

 

Inconsistency in Location Names

 

 Shanghai is one of the biggest ports in China and in the whole of Far East Asia. Shanghai port is included in the rotation of all major shipping lines.

When you look for Shanghai in a freight ratesheet, you can see the following variations of its name: “Shanghai”, “Shanghai, CN”, “Shanghai, China”, “CNSGH”, “CNSHA” or even “China Main Ports” which sometimes is shortened to ‘CMP’ or ‘ECMP’ (for East China). These names are not commonly provided as a standard unified code (UNLOCODE).

The same carrier can use different abbreviations for the same port. We also witnessed the situation, where the carrier had one set of NCMP (North China Main Ports) in one contract and another set of NCMP in the other contract. Both contracts were sent to the same freight forwarder within the same week!

 

Inconsistency in Freight Surcharges

 

Freight rates consist of basic freight (BAS) and freight surcharges. Some freight surcharges are already included into BAS and some are excluded (quoted separately). There is no regulation of including or excluding freight surcharges and it can vary across the same carrier contract.

For example, in week 1, the bunker surcharge can be included in the basic freight rate. In week 2, the bunker surcharge is given as a separate freight surcharge. In week 3, the bunker surcharge is again included into the basic freight rate. This is common practice.

Obviously, there is no unified naming convention for the surcharges. For example, bunker surcharge can be abbreviated as BAF, SBF, or BUC. Low sulfur surcharge can be called LSS, LSF, or ECA – depending on the carrier you use.

 

Inconsistency in the Outport Rates

 

Many shipping lines provide the main port rates and attach a separate table with the outport additionals. For example, BAS for Shanghai – Hamburg is 1000 USD / FFE, and Hong Kong is 50 USD / FFE on top of Shanghai, which means that BAS for Hong Kong – Hamburg is 1050 USD / FFE. When Shanghai – Hamburg rate changes, Hong Kong additional remains the same – 50 USD / FFE on top of Shanghai. This is a relatively easy way to present the rates, as statistically, main port rates change more often, than outport additionals. This makes a lot of sense, and it saves time and resources on the rate reprocessing.

But we’ve seen freight ratesheets with all-in main port rates and a separate page with all-in rates for the outports. There is no logical commercial explanation for this – just a clear lack of proper tools.

 

Consequences

 

All these inconsistencies are both the cause and effect of the broken shipping process. They make it impossible to digitize pricing and bring the quoting online.

• Shipping lines waste time and resources on sending bulky freight ratesheets and struggle with invoice quality, losing millions on internal inefficiencies;
• Freight forwarders receive hundreds of freight ratesheets in unstructured and inconsistent formats, waste their time processing the data and struggle with the invoice quality;
• Shippers wait for freight quotes for hours and deal with the inconsistencies in the formats.

Some industry players vote against displaying freight rates online, as it may start the price wars and drive the margins down. Commercially valid reason. But still, there is no logical explanation for the mess in the pricing of the shipping lines.

What about the freight marketplace, where a client can compare the rates of different carriers and book his freight online automatically with the selected provider? What about digital freight forwarders, who promise a fully automated service from A to Z?

Any automation must start with the standardization. In the case of container shipping, it must start with the simplification.

We believe that until all shipping lines agree to use the same port naming convention, unify trade and port surcharge structure, and agree on the way the rates are presented and distributed to the client, it will be very difficult to build a platform to compare shipping rates online.

Once the pricing is simplified, the quoting can be dramatically improved, as we do it in Quotiss.

Click here to register online. 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 instantly on the same day we sign the deal.

by Marcin Zarzecki, CEO of Quotiss

There are many good things one can say about container shipping and its global impact on the world economy. But shipping lines are also very well known for sending very complex and unstructured freight ratesheets. During my time in Maersk, where I spent over 10 years in the sales function, I was often struggling with the challenges of the pricing and quoting policies, despite Maersk being one of the most advanced carriers and the global leader in this aspect.

One of the reasons why I started Quotiss 2 years ago was to simplify ocean tariff management. By this time, we have collected a lot of data.

By now, I have seen thousands of freight ratesheets from various shipping lines, and I had time to analyze their structure very thoroughly. Conclusions are surprising and not too cheerful: this tremendous complexity comes from the internal inefficiencies and ‘broken’ processes of the shipping lines themselves.

 

The Data

The analysis is based on the data collected from the ocean tariffs that are uploaded into the Quotiss software by freight forwarders. The data has a healthy mix of various parameters:

–         Freight forwarders who use Quotiss software work with most of the major shipping lines – we studied the specific rate formats of all major ocean carriers;

–        Freight forwarders who use Quotiss software come from different parts of the world – we studied the differences in the rate format based on the specific country/office which prepared the rate sheet;

–        Freight forwarders who use Quotiss software work with shippers in different industries – we studied the differences in the NAC / special freight rates/exceptions format.

The Analysis

 

Let’s look at Far East Asia – Europe ratesheet generated by one of the major shipping lines.

1.      The structure

This rate sheet contains 15 000 port pairs, 109 000 lines with rates and surcharges, 545 000 unique rates for all equipment types. It is 500 000+ unique rates in a single freight ratesheet for just one trade/direction, with the validity of 2 weeks maximum.

 

2.      The delivery method

This freight ratesheet has been emailed to a freight forwarder as Excel file in attachment. Freight rates on the Asia-Europe corridor change very often, sometimes even a couple of times per week. Let’s assume, the average update frequency is weekly. This means, that every week, a bulk load of freight ratesheets with half a million rates each is generated and sent by email to hundreds of freight forwarders globally.

That is 500 MILLION unique freight rates that are being updated and distributed on the market, all by just one shipping line on one trade/direction.

 

3.      Local specifics

Everyone in the industry knows that different shipping lines send their freight ratesheets in different formats, like .xls, .pdf, or just copy-paste Excel table to the email body. But only a few people know that even within the same shipping line, different offices might use different templates and formats. Sometimes, even within the same office, salespeople send freight rates in different formats.

These format discrepancies within one company usually come from the big list of exceptions that are specific to the country/port.

There is a clear lack of the unified standard across the ocean carriers, which comes from the lack of standard software solutions that would be capable to cater for the giant list of local exceptions in an automated way.

 

The Conclusion

 

The saddest part is that over 99% of contents inside these freight ratesheets will never be used by anyone. Statistically, almost all cargo traffic on Far East Asia – Europe trade lane is generated by 20% of ports. Pareto Rule works for all trades in ocean shipping.

There is a lot of waste in the process. Shipping lines realize this waste and work hard to improve the quoting process by trial and error, implementing various custom-made software solutions. But improving the ‘spreadsheeting’ is like putting lipstick on the pig – doesn’t make it any more pretty.

 

The Solution

 

Is there any solution to bulky freight ratesheets? There is an obvious and logical one: for the real change to happen in container shipping, ocean carriers have to simplify and unify their pricing structure across all offices/trades.

Once the pricing is simplified, the quoting can be dramatically improved, as we do it in Quotiss. In my next post, I will dig deeper into the most common errors which we see in the freight ratesheets.