Freight Rate Management

Seafreight, Airfreight, Rail freight, Inland rates, precarriage, oncarriage – how to manage the tariff and local charges

Freight forwarder tools Quotiss

Freight Forwarders Deserve Better Tools

The most popular computer software in all freight forwarding companies around the world is undoubtedly Microsoft Excel. Released in 1985, Excel became a superstar tool, helping businesses become more efficient. Its advanced formulas turned manual processes that took weeks to complete into something that takes only a few hours.

Today, the situation has changed. In the world where Pokemons run free on the streets and hundreds of companies are created every minute, MS Excel just can’t keep up with the flow. In fact, Forbes named it the most dangerous software in 2013.

So why is it the most popular software?

 

You Can Do Anything with Excel Spreadsheets, Can’t You?

 

The freight industry has been married to Excel for more than 30 years. And MS Excel is still great at what it does – it’s simple, flexible, powerful, and cheap. But then, it suffers from some serious limitations:

  1. No collaboration: Excel lacks multi-user collaboration support. It’s difficult to share a spreadsheet among many team members. Excel might be fine for the freight rate management when you have ten customers. It’s when you start getting massive amounts of freight ratesheets that everything falls apart.
  1. Manual errors: Spreadsheets are error-prone and insecure. One incorrectly entered piece of data could spawn a domino effect and cause all sorts of serious problems. Nearly 90% of spreadsheets contain errors. No wonder that every 10th invoice in shipping is disputed, because of the wrong freight rates calculations.
  1. Unprofessional look: You are the professional in your business, and your clients expect that you present yourself professionally. A freight quote is a presentation of your company, your brand and your services. Excel spreadsheets lack a corporate look and feel and look unprofessional when shared with clients (even with a logo on top).
  1. Loss of data: There is a big risk in relying on an Excel file. Since Excel is a ‘standard tool’, business managers don’t consider the need for security in the same way as they would with other data. Also, consider the potential loss of knowledge. The single person who understands how the freight rate spreadsheet was put together and holds full control over it is a potential risk too.
  1. Spreadsheets multiply: Excel files tend to multiply. Logistics managers usually have their folders full of different versions of the same data. Users often copy data from one spreadsheet into another, rename, add some macros. The moment you consider deploying an MS Access database means that you’ve reached your critical mass of data that is impossible to navigate and analyze.
  1. No real-time analytics: Excel is best at analyzing historical data and is not great at doing real-time analysis. Usually, the decision-makers put too much trust in Excel data, even when there is no evidence that it is correct. In other words, people believe what spreadsheets say, even when spreadsheets are wrong.

 

Freight Forwarders Deserve Better Tools

 

Clearly, MS Excel has become obsolete as a freight rate management and sales automation tool and should be replaced with a proper freight rate management software designed for freight forwarding. Sooner or later, every forwarder will be using proper software – the digitization is inevitable.

Many still use Excel because it doesn’t hurt bad enough yet, or they had a bad experience with a previous solution.

Now it’s the right time to give it another try.

By switching from Excel to Quotiss software, you can automate the sales activities and get access to the sales performance analysis, in real-time. There will no longer be a need to manage a number of complex freight ratesheets in Excel. Most importantly, your commercial data will stay secure!

Freight rate management quotiss

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.

Freight ratesheets

Pizza vs Freight Rates

Everybody loves pizza!

Over 5 billion pizzas are eaten every year in the world. It is a 30 billion dollar business, and more and more new pizzerias are opening. Probably, one of the reasons is that the ‘pizza model’ is universal and extremely simple to replicate! No matter which country you go to, pizza looks round, ingredients are similar and the menu has the same structure everywhere. There are traditional all-time favorites like ‘Margherita’ or ‘Peperoni’, etc (the base), with a separate list of customizations in the form of extra toppings.

Nobody Loves Freight Rates… 

Over 100 million containers are shipped every year in the world, forming the backbone of the current economy. However, the ‘shipping menu’ aka freight tariffs  – unlike pizza menu – is extremely complicated, with unique complexity to the freight pricing structure.

Imagine going to a pizzeria, where you have to wait for an hour to get a menu, because all possible customizations are put together manually upon request, for each table separately. And you can never be sure that you got the full menu at the right price. Well, this is the reality of the freight tariffs in container shipping.

 

Hub and Spoke vs Point to Point Model

 

You might say that pizzeria has nothing to do with freight shipping, but actually they share the same business model. The model is called ‘Hub and Spoke’, named after a wire wheel. The classic form of this business model is seen in the aviation industry: each airline has a hub airport, used as the base for operations. The airline provides a number of regular connections, some ‘unusual’ connections at higher prices, and presents a list of extra paid services for passengers.

Freight ratesheets

The wire-wheel consists of many different parts and internal links, but in the end everything is interconnected and spinning. The great advantage of this model is that the pricing can be highly accurate. The product is consistent because there are no individual variations.

 

Hub and Spoke in Shipping

 

The shipping industry is the pioneer of the hub and spoke: large ship takes the container to a hub port, the small ship takes it to a small port, and truck delivers it to the client. Must be simple and efficient, right? Operationally – yes, but not commercially.

Commercially, each mode of transport for this container is a complex calculation in itself – it consists of various surcharges, special terms, seasonal add-ons, and individually negotiated charges. And the worst part – freight rates change weekly. At this point-to-point commercial structure, container shipping loses efficiency and creates long lines of unhappy clients, waiting for days for their freight rates.

At the attempt to solve the problem, many technology companies try to digitize freight pricing and quoting process ‘as is’, which does not bring the expected result – before digitization, the broken process has to be fixed.

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.

The Power of Simplicity

When John F. Kennedy became the President of the USA in January 1961, Americans had the perception that the United States was losing the Space Race with the Soviet Union, which had successfully launched the first artificial satellite, Sputnik, almost four years earlier. The perception deepened when in April 1961, Russian cosmonaut Yuri Gagarin became the first man in space.

Convinced of the political need to make an achievement which would decisively demonstrate America’s space superiority, Kennedy stood before Congress on May 25, 1961, and proposed that “this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth.”

 

A Man on the Moon

 

As Heath brothers put it in their book “Made to Stick”: ‘Had John F. Kennedy been a CEO, he would have said, “Our mission is to become the international leader in the space industry through maximum team-centered innovation and strategically targeted aerospace initiatives”.

Large organizations are by nature complex, but over the years they added layer upon layer of complexity to how businesses are structured and managed. In many, more energy is devoted to navigating the labyrinth than achieving results.

Accountability is unclear, decision rights are vague, and frequently there is no clear idea of how to use large amounts of generated data. What seems like a simple question to a CEO can turn into a major exercise for hundreds of other people down the organization chart.

 

Longing for Simplicity

 

In recent years, corporations have put their business processes through rigorous scrutiny, with Six Sigma, Lean model, 5 Why’s, etc. While some processes are relatively well structured and controlled, many others haven’t benefited from improvement techniques.

Consider freight rate management in shipping – pricing and quoting of freight rates haven’t evolved since last century. Many global corporations are still utilizing MS Excel as the main tool to execute commercial activities. That results in too much variability and makes the job extremely inefficient.

 

Can Technology help?

 

Many companies have found that trying to simplify processes through large-scale enterprise systems, often leads to diminished rather than enhanced productivity. Why is that? Simply, a large enterprise system is a complexity in itself.

It takes several months (or rather years) to analyze, blueprint, adapt, implement, re-write business processes and then re-write again, facing the reality and actual user feedback. It usually costs a lot of money, making it difficult for top management to admit that something went wrong and expected efficiency has not been achieved, thus creating anxiety and disappointment at the bottom of the organization chart.

The Solution is Simplicity. Keep it simple, even when it actually is about rocket science!

“Before this decade is out, landing a man on the Moon and returning him safely to the Earth”.

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.

Container shipping

Container Shipping – 90% of everything

“Almost 90% of everything we buy arrives via ship”, writes Rose George in her mind-blowing new book “Ninety Percent of Everything”, which covers her months-long adventure with the shipping industry — the biggest business that you know nothing about.

 

Ninety Percent of Everything by Rose George

 

Rose George, a British journalist, spent months traveling the ocean on various massive ships the length of football fields and the height of Niagara Falls to report this book on shipping, which she calls “the invisible industry”:

“These ships and boxes belong to a business that feeds, clothes, warms, and supplies us. They have fueled if not created globalization. They are the reason behind your cheap T-shirt and reasonably priced television. But who looks behind a television now and sees the ship that brought it? Who cares about the men who steered your breakfast cereal through winter storms? How ironic that the more ships have grown in size and consequence, the less space they take up in our imagination.”

 

The Top 10 Most Fascinating Facts About the Shipping Industry:

 

1. Shipping is the “greenest” mass transport

Compared to the energy expended moving goods by plane or truck, shipping is far less damaging in terms of greenhouse gases released. However, the shipping industry is so big that, if you added shipping to the list of the world’s most polluting countries, it would come in sixth place.

2. Ships are incredibly big

The largest container ship can carry 15,000 boxes, which would hold 746 million bananas. This would be about one banana for every person in Europe.

3. Ships cover the oceans

At least 20 million containers are currently traveling across the oceans. That’s a lot of bananas!

4. Shipping is a huge source of revenue

Economically, the shipping industry is monstrous in its size. In the United Kingdom, shipping accounts for more of the GDP than restaurants, takeaway food, and civil engineering combined — about 2 percent of the GDP by itself, just behind the construction.

5. Pirates are dangerous and prevalent

The rate of attacks on seafarers by pirates (for example, off the coast of Somalia) was higher last year than violent assaults in South Africa, which has the highest level of crime in the world.

6. Shipping is incredibly cheap.

It’s less expensive to ship Scottish cod 10,000 miles away to China to be filleted and then sent back to Scotland than it is to pay Scottish filleters to do the job. Of course, this reflects mostly on the cheapness of Chinese labor, but it does also show shipping’s low costs.

7. The inspection of containers is rare.

Only 5 percent of the containers shipped to U.S. ports are physically inspected, and that number is even lower in Europe. This probably would help explain Jack Sparrow’s common question.

8. The oceans are vast.

A container ship travels the equivalent of three-quarters of the way to the moon and back in one year during its regular travel across the oceans.

9. Shipping companies don’t like outsiders.

Shipping companies are so secretive and private that, for example, the official Greek shipowners’ association refuses to reveal how many members it actually has. And, George points out, that’s not considered weird in the industry.

10. Shipworker demographics are extremely predictable

On average, the typical shipworker is a male Filipino; Filipinos make up one-third of all ship workers, and men constitute 98% of the workforce. As a British, white female, author Rose George was thus very much an outlier on her sea journeys.

The full text of the article can be found here

Quotiss - freight management software

Why Do Freight Rates Change So Often?

In the previous post “Pricing Challenge in Container Shipping” we mentioned that it’s not easy to structure freight tariffs and send instant freight quotes. The reason being the high complexity of the transportation costs: up to 25 variable charges plus the overall rate volatility caused by the supply and demand imbalance.

Looking at the whole end to end process, it seems logical that transportation price consists of multiple components because the cargo literally travels half of the globe one way. However, importers and exporters do not like that complexity when it comes to paying freight invoices. The issue often sparks debates and the most popular solution on the table is to quote All-IN rates in order to limit the number of charges in question and simplify the pricing structure.

At Quotiss, we support any process simplification, and we also offer a solution to the complicated freight rates.

 

Why Do Freight Rates Change Often (Technically)

 

Rate volatility is an issue that adds complexity to the freight rate management process.

Let’s take a closer look at the ocean freight rate structure to check where this volatility originates. Out of all components, the majority of freight and local charges are fixed and change very rarely, for example THC (terminal handling charge). A few charges change approx. every quarter, like BAF (bunker surcharge). Some of the charges are seasonal, like PSS (peak season surcharge) or WSC (winter season surcharge).

There are many different surcharges when it comes to ocean freight, there is only one that changes very frequently. It is BAS (basic freight).

Technically, basic freight (BAS) is the main driving force for ocean freight rate volatility. Following the 80/20 rule of Pareto, if there is an efficient tool to manage frequent BAS changes, then 80% of the ocean freight tariffs will be updated automatically.

 

Why Do Freight Rates Change Often (Commercially)

 

Simple and straightforward – freight rates are determined by supply and demand. Market forces are the main driving factor behind the freight rate fluctuations. Factors such as fuel prices, distance traveled, terminal costs, etc. don’t impact freight rates as much as supply and demand do.

In recent years, shipping lines have been building bigger and bigger ships to benefit from the economy of scale. The global economy has also been growing but at a much slower pace. That distortion resulted in an increasing gap between supply and demand. This is the main and most important reason why freight rates are hitting the record low values in recent years. Cheaper fuel may also contribute to the overall picture, but it will never be the most significant factor. Ocean shipping companies won’t be able to keep rates from sliding if they don’t idle more ships.

According to the United Nations Conference on Trade and Development (UNCTAD):

“In general terms, the demand and the supply of maritime transport services interact with each other to determine freight rates. While there are countless factors affecting supply and demand, the exposure of freights rates to market forces is inevitable. Cargo volumes and demand for maritime transport services are usually the first to be hit by political, environmental and economic turmoil. Factors such as a slowdown in international trade, sanctions, natural disasters and weather events, regulatory measures and changes in fuel prices have an impact on the world economy and global demand for seaborne transport. These changes may occur quickly and have an immediate impact on demand for maritime transport services. As to the supply of maritime transport services, there is generally a tendency of overcapacity in the market, given that there are no inherent restrictions on the number of vessels that can be built and that it takes a long time from the moment a vessel order is placed to the time it is delivered, and is ready to be put in service.

Therefore, maritime transport is very cyclical and goes through periods of continuous busts and booms, with operators enjoying healthy earnings or struggling to meet their minimum operating costs.”

 

Complexity vs Simplicity

 

The end customer (importer or exporter) does not really care about all these factors. They just need to know what is the total price for transporting a container from A to B. They want the best freight quote, which is easy to understand, as soon as possible.

Shipping lines and freight forwarders face numerous troubles managing millions of ocean freight rates. They struggle to provide freight quotes quickly and accurately. The majority of forwarders still use MS Excel spreadsheets to manage rates.

E-mailing of the bulky MS Excel files back and forth is often the main communication channel between pricing and sales teams. Millions of MS Excel files are sent back and forth, which leads to the loss of revenues and increases the count of manual errors.

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.

Quotiss - freight management software

Pricing Challenge in Container Shipping

Among other daily routine tasks, sales teams in both shipping lines and freight forwarding companies have to set up and manage the PRICING for the services they offer and send freight rate quotes to their customers. The industry is known for being very slow in quoting freight rates, and there are important reasons why.

What are the reasons for the ocean freight pricing to be so complicated and why it hasn’t been fixed yet?

 

The Cost of the Ocean Transport

 

Let’s first take a look at this aspect from a shipping line perspective, and break down the cost structure. In the simple linear example, the total cost of transporting the container from Port A to Port B will consist of:

Origin charges in Port ATransport from Port A to Port BDestination charges in Port B

But there are often transhipments on the way, which alter the cost structure:

  • Origin charges in Port A1 + Transport from Port A1 to transshipment Port A + Local charges in Port A
  • Transport from Port A to Port B
  • Local charges in Port BTransport from transshipment Port B to Port B1 + Destination charges in Port B1

To add more complexity to the list above, most of the cost components consist of sub-components. For instance, origin charges in Port A1 consists of:

  • THC (terminal handling charge),
  • EXP (export fee),
  • DOC (documentation fee), etc

Cost of the ocean transport from Port A to Port B can consist of:

  • BAS (basic freight)
  • ISPS (security charge),
  • ERS (“pirate” surcharge),
  • BAF (bunker surcharge),
  • LSS (low sulfur surcharge).

Ocean freight surcharges can be indicated in different currencies, depending on the trade lane or even port-port combination. Depending on the shipping line, the abbreviation used in the tariff can be different. For example, bunker surcharge can be called BAF, SBF, or BUC. The low sulfur surcharge can be named LSS, LSF, or ECA – depending on the carrier.

 

The Challenge for Freight Forwarders

 

Freight forwarders rarely quote just the ocean freight rate to their customers. Their offers often contain the cost for the inland haulage in both ends, adding even more complexity to the pricing of the shipment. Customs clearance, warehousing, special services – everything has to be calculated into costs for every single shipment.

Now, while the transportation costs are important, they are not the main driving factor for the pricing in the industry. Supply-demand is the king, which dictates the rates and impacts them very often, even too often.

Shanghai Freight Index is the aggregated measurement of the ocean freight rates. It perfectly illustrates their volatility:

Quotiss - sales automation tools

It’s not an easy task to maintain the order in the ocean freight pricing when transportation costs are so volatile and complex in their structure.

 

Complexity vs Simplicity

 

The end customer (importer or exporter) does not really care about all these factors. They just need to know what is the total price for transporting a container from Port A to Port B. They want the best freight quote, which is easy to understand, as soon as possible.

Shipping lines and freight forwarders face numerous troubles managing millions of ocean freight rates. They struggle to provide freight quotes quickly and accurately. The majority of forwarders still use MS Excel spreadsheets to manage rates.

E-mailing of the bulky MS Excel files back and forth is often the main communication channel between pricing and sales teams. Millions of MS Excel files are sent back and forth, which leads to the loss of revenues and increases the count of manual errors.

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.