Managing Freight Pricing - Where companies hit the wall?

by Guest Posting on 2010-07-31

Pricing and business development teams in any reasonably sized freight forwarding company handle around 200 bids in year. Typically each of the bids would contain around 200-800 lanes that need to be priced. These lines could be Ocean based, air based and involve specific incoterms, service conditions, SLAs and require all accessorials to be provided as per client’s format. Even if we take average 500 lanes in a bid and around 5 to 6 accessorials and there would be at the least 15-20 odd data points that need to be determined per lane. A simple calculation would show that in a year, a team would handle 2.0 million data points. Freight being the most critical one ofcourse and is a decisive factor for winning the business.

Multiple studies by various industry players and my interactions with some of the leading players indicate that ‘all powerful’ excel is still the ‘app to go’ when it comes to determining pricing. Organizations invest millions of dollars in automating operations and improving customer experience. They do realize that those few cents in the high volume lanes may make or break the deal on hand. Yet age old practices galore. With some manual calculations they are able to push the proposal off the table. However, more and more logistics companies are realizing that yield management is matter that needs to be actively managed in each deal not just for winning the deal but for sustenance of business. Pricing and yield management has become a focus area for CFO’s of the world today.

For determining basic freight itself over 10 decision points need to be factored in which include historical data, achieved costs, volumes etc., Optimizing this further at the tradelane level, given the size of data involved is herculean task. Slowly, but definitively more and more organizations are moving towards automating this area and managing yield more actively in each transaction and shipment.  Yep, it’s the factor that puts you in or out of business. Profitable growth, that’s the buzzword of the day.

One would wonder why did no one addressed this space when there are so many application vendors all around. One of the primary reasons is excel  is such a handy tool, its difficult to get such usability in any other app. More over each of the clients give different formats to submit (most of them again excel based) and multiple data points to feed and this complicates the task.
Some of the key points to remember when you hit the wall in pricing is:

1.    Roll up lane level volumes to gateways. That is where volume play is there.
2.    Keep achieved costs handy. But, never they are the final answer to fix a new contract.
3.    Keep an eye on spot rates.
4.    Never predict pricing. Have a scientific mechanism to determine final price.
5.    In freight forwarding every single contractual term counts. Convert all of them into data points

Author
Brahma Mutya is a Product Manager with Wipro Technologies. Wipro Technologies is a USD 6.0Bn+ technology services company with presence in over 54 countries. Wipro is world’s largest independent R&D services player and preferred partner for leading logistics players.  Brahma has strong expertise in logistics consulting and transportation technologies and led several successful engagements globally.  Currently he is managing IT BPO platform based product offerings in addition to pricing analytics solutions of Wipro.

He can be contacted at: brahma.mutya@wipro.com
Linkedin: http://in.linkedin.com/in/msbrahma