Is building an in-house Rate Management Solution more profitable than buying one?

January 20, 2022

The freight forwarding market is complicated.

Forwarders must coordinate and operate with several carriers, customers, and a variety of routes and rates.

Similarly, the quantum of information that needs to be processed is voluminous. Only a resilient tech solution can restructure the stress that this causes on the supply chain.  

This is an image showing different trends in the logistics digitalisation and digitalization for freight forwarding.
Source - Zipline Logistics

In a fast-paced sector, forwarders are generally pushed on a backfoot if they do not have the right sets of data in hand. From spot rates and quotes to schedules and currency exchanges, every value could potentially impact the bottom line.

Gone are the days when freight forwarders had to manually track every transaction on paper. In today’s technically competent world, there is an abundance of software and solutions that will provide analyses on the fly. A rate management tool would solve the problems that come with handling real-time information. Our previous blog explores the benefits of using an automated rate management system.  

However, the evident question is how a freight forwarder can effectively develop or integrate an efficient rate management system (RMS)?

Forwarders can measure the efficacy of an RMS tool by measuring the ability to process the substantial volumes and provide accurate insights. Other crucial details that the solution should be able to deliver are transparency and visibility. 

The process of creating a rate management solution (RMS) through a do-it-yourself (DIY) model can be split into four main phases: the generic understanding, the supplementary facets, the distinct specifications, and the extensive network building or data collection. 

Generic understanding for a rate management solution 

This segment revolves around the necessary specialized knowledge required to make any software. The starting point to building any tech solution is to understand the problem at hand. Questions like who is currently affected by the problem, the reasoning behind the impact, and what can be done to improve the experience need to be understood before proceeding. 

The RMS tool should be more than an Excel list that keeps track of rates. This platform should eliminate time-consuming formulae and cumbersome processes. Standardizing formats and converting currencies at the daily exchange rates should be possible. The rate management system must ensure that both the freight rates and appropriate schedules are covered, as well as the area of ​​spot and daily price inquiries. Ultimately, the freight forwarders, agents, and their customers should benefit from the visibility and transparency that will be provided. 

Supplementary facets for the RMS solution 

Once the brainstorming is completed, the solution’s feasibility should be explored. The expert developers, system architects, and manual testers must then design and program according to the code scripts written.

At this point, the RMS tool that is being constructed would need to be integrated into other software from which data (like carrier’s daily prices and exchange rates) will seamlessly flow in. The project team would also be required to classify the formats for data upload and information download.

In the quality assurance stage, the QA engineers will fix any bugs, after close examination. Focus groups will experiment with various versions of the software and provide their feedback. 

And finally, just before releasing software, privacy concerns and security features need to be enhanced. The project team would need to make decisions like where to host the platform and devices to launch it on. A UX designer would also have to provide their inputs on how to make the tool user-friendly. This is imperative, as multiple types of profiles will access the rate management system simultaneously. 

Distinct specifications for the rate management software

A sophisticated rate management solution entails more than just the simple software idea and the fundamental requirements mentioned so far. 

The two key elements that would make a great RMS solution are the front-end user interface and the back-end databases. The term “front-end” refers to the user interface, while “back-end” means the server, application, and database that work behind the scenes to deliver information to the user.

In an RMS solution, the front end would be where agents or customers can see the various rates that are prevailing, and the back-end database would include data-dumps of rate information from various carriers. 

During the development phase, other common aspects that need to be brainstormed over are access management and authentication. The software may process accurate data. However, if the wrong people get their hands on this data, it will bring down the entire operation. Hence, decisions like how one accesses the tool to what kinds of editing rights does each person gets need to be decided up-front. 

The service solution will require a diligently defined disaster recovery and response plan. Global trade will not stop just because the rate management system has suddenly crashed. Further, the project team should create problem management scopes and hierarchies to solve incidents. 

As a stand-alone logistics company or as a freight forwarder, it will be very hard to take such major decisions without understanding the nuances involved. From determining which server to host the application on (either via own-premises or through Azure or AWS) to which concept is used for database management (blockchain or otherwise), the technical decisions are numerous. Freight forwarders would have to partner with technology consultants to make these verdicts, generate the scripts and create the front-end interface. 

Extensive network building for the RMS Tool 

Having a great design and a perfect script would not suffice if the information that the database contains is not maintained efficiently. If a small or medium-scale freight forwarder was to create the RMS solution on their own, they would first have to approach all the carriers to identify the daily rates and the scheduled routes. 

Post the pandemic, the logic to quoting spot rates has left freight forwarders questioning the historical norms. Freightify’s CEO Raghavendran Viswanathan explains that forwarders now face a challenge that is entirely opposite to the previous practices. Traditionally, freight forwarders know that they have space on a vessel, but they struggle to find the price that will win the business from a shipper.

However, in today’s supplier-centric market, the price has become the known devil for forwarders. The biggest problem a forwarder faces is finding freight space. And as a result, they need to know the price that will confirm the space for them. However, with global shipping trends, there’s no way to tell whether a price confirms a space commitment. That makes it difficult for them to give a price to their customers, and the cycle continues as customers would not know what they should be quoting for. 

There are two ways to answer this tricky situation: one could either book a rate that has a confirmed booking attached to it; or, more effectively, use technology to gauge the rough price at which the cargo will win prized space on a carrier’s vessel.

In such a rate-driven market, the input rates and routes in the RMS tool will make or break a business. Hence, it is better to leave such a decisive activity with a seasoned supply chain technology provider. This will give freight forwarders more time to build their business and create a personal rapport with their clients.  

Why re-invent the wheel?

Many players make up the freight forwarding market. However, the top 20 players dominate and account for more than 50% of the total market share. Digital forwarders must compete with established players as they invest in assets and customer service along with technology to enable more value-added services.

Additionally, high freight rates sustained forwarding revenue in 2020 and average margins were 7.5%. This makes the market more competitive with technology as the decisive factor. 

Why re-invent the wheel when specialized tech providers in the supply chain industry (like Freightify) have already done extensive analysis and research to develop a resilient RMS solution?

Why reach out to carriers and market authorities to get rates and routes?

Why worry about the technology costs of developing a new product when the available RMS tools can be customized?

Why traverse technical trials and teething troubles when proficient plug-and-play RMS solutions can be leveraged? 

Freightify, also referred as Shopify for maritime freight, enables freight forwarders with digitalization of their ocean rates and saves 70% of the time invested while cutting down 50% of the cost just at the click of a button. It provides white-labeled rate management solutions that freight forwarders can use to set up their online customer facing platform. Freightify can be integrated with existing transport management systems(TMS) and can track the movement of cargo. 

Once freight forwarders set up an online platform with Freightify, their customers use it to compare rates, send quotes, request for booking, and track shipments. Take your first step towards digital rates and quotes. Try out our solutions at no cost now!

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