10 Vital Metrics and KPIs for a Successful Freight Forwarding Business

July 4, 2022

The freight industry is inundated and overwhelmed with a number of uncertainties.

Every nuance impacts the supply chain industry, from volatile freight rates to complicated supply chain structures, from container scarcity to delayed port clearance, labour shortage to political turmoil, and from complicated documentation to unpredictable demand. 

For a business to survive these harsh conditions and make a profitable outlook, it is vital to mark, measure, and monitor various statistics that show the current status of their business performance. 

What's in this article?

  1. Impact of Digitization on Freight Forwarding
  2. Importance of Transparency and Visibility
  3. KPIs based on Time and Tracking
    a. On-time Deliveries
    b. Average Wait Time
    c. Order Accuracy
    d. Lead Conversion Time
  4. KPIs based on Freight Rates
    a. Average Freight Cost per Tonne Shipped
    b. Ratio of Value Added Costs(Surcharges)
    c. Average Margin
  5. KPIs based on Internal Business Operations
    a. Quote Conversion Ratio
    b. Number of New Sales Leads
    c. Shipment Quantum and Capacity Utilization
  6. Why do you need to track KPIs?

Impact of Digitization on Freight Forwarding

Digital advancements have positively impacted the operations of a freight forwarder in the form of various rate management systems, procurement tools, and quote creation modules.

These platforms have helped streamline complicated processes, better manage data, and allow standardized operations. 

Another important benefit that digitization offers is the ability to consolidate and analyze data, ultimately identifying business metrics and monitoring KPIs.

These KPIs enable a business to better understand its performance and health so that critical adjustments can be made to achieve the planned goals. 

Importance of Transparency and Visibility

In the 21 century, transparency is considered an important pillar of supply chain and logistics.

Alongside visibility, it is considered the key to overcoming this industry's unorganized and unpredictable challenges. 

Transparency is the seamless sharing of data up and down the supply chain with internal teams and external partners.

Without important data being shared, a lack of trust develops within key links in the supply chain, and hence avoidable situations can be detected and controlled.

Businesses referred to intellectual property thefts, security risks, and operational vulnerabilities as the main reasons for not pursuing greater transparency.

However, with digital advancements, this is slowly but surely changing. Calculating, observing, and publishing various KPIs are a part of this process to attain transparency and visibility. 

KPIs based on Time and Tracking 

On-Time Deliveries

With advancements in digital tracking mechanisms, it is effortless for forwarders to keep track of the client’s shipments and their estimated time of arrival (ETA).

The on-time delivery performance indicator refers to the percentage of orders that have been delivered on or before the estimated arrival date.

A sub-set of this statistic is DIFOT (Delivery In Full On Time) – where only those deliveries in full and on time are considered.

This meter helps forwarders understand how effectively they met their supplier expectations and helps them advise clients better in terms of reliable routes and liners.

This ratio happens to be the ultimate benchmark that clients would use while selecting a forwarder for their requirements. 

Average Wait Time

This is the time the shipper takes to load the cargo into the truck.

It is calculated in the form of minutes or hours from the time the truck enters the loading warehouse until the time that the truck or container is loaded and has left the premises.

As freight forwarders are a constant intermediary through the shipment process for both the shipper and the carrier, it is imperative that the forwarder understands the areas prone to delaying incidents.

Carriers tend to charge a premium for high wait times; hence, forwarders must track this to identify such instances upfront and incorporate them into their freight quotes. 

Order Accuracy

This is the ratio of orders that have been accurately delivered without damage during shipping or any issues with customs.

It effectively monitors the degree of incidents from placing the order to delivering a shipment.

If cargo is to be returned, the shipping costs double. Hence, this is an important KPI that the customer will be interested in.

Trends show that 8% of all purchases in 2019 were returned.

This is a significant value for the shipper, as it can be used to discover insights and pick up trends on what could go wrong in a delivery schedule; forwarders can track the order accuracy while identifying patterns and fixing inaccuracies to make transportation safer. 

Lead Conversion Time

Potential customers, often referred to as leads, take constant effort and follow-up before they can be converted into a final sale.

This ratio identifies the time range that it takes from the time that the freight forwarding field agent identifies the sales lead until the lead is converted into a sale.

It is reported in the form of days taken.

This is an important metric for digital forwarders as this time range shows how long it takes to win business, and it can report the efficacy of the freight forwarding agents.

It also helps the management identify where delays happen (for example, at the quote creation stage or price procurement stage) and incorporate technology to overcome these delays.

Overall, it can be used to measure Employee Productivity.

Metrics based on Freight Rates 

Average Freight Cost Per Tonne Shipped

The freight rates have been very volatile in the last couple of years.

There has also been an increase in SPOT rate shipments compared to movements through a fixed-rate card.

Customers prefer the services of a forwarder for the additional expertise they share in deciding a cost-effective route for their cargo.

For a forwarder to be able to advise clients better and be knowledgeable with accurate industry trends, understanding freight costs for every route is imperative.

This ratio is calculated as a whole value in common currencies and can be bifurcated based on routes and seasons. 

Ratio of Value-Added Costs (Surcharges)

Several add-on charges are mandatorily added by liners and customs authorities, over and above the true cost of freight.

These differ based on the origin and destination ports, fuel usage, routes, product type, and even security requirements.

Most often than not, these surcharges are not avoidable.

Forwarders are expected to understand the nuances involved and help customers minimize their exposure to these surcharges.

Hence, freight forwarders need to map the ratio and costs involved in surcharges to win and retain clients.

This ratio can be identified in terms of the total freight shipping cost or in absolute terms in a common currency. 

Average Margin

This is a key business indicator that all companies, irrespective of the industry, measure their success on.

It is calculated by summing up all costs and all profits. It is a percentage of the profit value by the total price quoted to a customer.

For every customer, there could be varying degrees of profit margins over an extended period.

And hence an average of these helps the forwarder understand the average profit percentage that he runs his business on.

While there could be a standard margin incorporated when raising the quote, margins are often tweaked to retain or win customers.

Hence, it is essential for digital forwarders to keep track of their average profit margin.  

KPIs based on Internal Business Operations

Quote Conversion Ratio

In the freight forwarding industry, a quote conversion refers to a potential customer accepting a quote and being converted to a final order.

Efforts from the field agent or sales team and the pricing team are involved at this stage.

This quote conversion ratio determines the rate at which the potential clients accept quotes created by the pricing team.

It is a crucial metric that denotes the efficacy of the quotes prepared.

Customers could reject quotes for various reasons, and using this indicator, digital forwarders can analyze the main reasons by client or shipment type and re-engineer their quote creation process for better efficiency and higher quote conversion ratios. 

Number of New Sales Leads

The field sales team can map or track new sales leads in multiple formats, either traditionally on paper or through automated platforms.

The number of new sales leads in the pipeline, and the quote conversion rate could help digital forwarders know the future of their business.

There is a direct correlation between the quote conversion rate, future sales numbers, and the number of prospective clients.

This helps the management identify where additional efforts need to be diverted and whether the new sales leads need to be developed through various marketing strategies.

This metric is reported as a whole number at a single point in time.  

Shipment Quantum and Capacity Utilization

This refers to the rate at which the container or truck space is utilized. This is an indicator that is reported as a percentage.

Ultimately, all cargo movers aim to achieve 100% capacity utilization as any space wastage has a monetary impact and shows ineffective operations.

While this might be a metric that is more apt for the shipper or customer to map, the forwarder can also analyze this data for various reasons.

Forwarders can use this utilization rate to market themselves better as they would have used their industry expertise to ensure clients reach higher capacity utilization.

The trends forwarders analyze using this rate can help them better advise clients and liners.  

Conclusion

The concepts and KPIs explained above can be split into two types:

  1. Indicators that help identify the health of the freight forwarding business, and
  2. Trends that help the freight forwarder understand the direction that the market is moving in and for them to pick up industry knowledge

 

Both of these types of KPIs are vital for a freight forwarder to garner and retain more business and measure the efficacy of his operations. 

Freightify’s product suite provides the visibility that all stakeholders in a forwarding business might require to monitor these KPIs across their operations.

Through Freightify’s smart tools, it is convenient to compile, clean, calculate, and control the required data and indicators.

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