What’s in the article:
- What is a Rate Management System
- Background and context: Key players and current rate management process
- Limitations of the traditional rate management processes
- Key benefits of a Rate Management System
- Solutions available in the market
What is a Rate Management System
A Rate Management System is essentially a technological solution that helps automate and optimize the quoting of freight rates to customers. This involves streamlining all the steps involved in the quoting process to be able to retrieve various cost components and generate comprehensive and accurate quotes in a digital format.
Background and Context: Key Players and Current Freight Management Process Prevalent in the Industry
Rate management and quoting are crucial activities for Logistics Service Providers and Freight Forwarders. The process isn’t simply a matter of providing rates in response to customer inquiries but is rather more complicated.
The complexity arises from the fact that LSPs and Forwarders do not provide just point-to-point transport services but a comprehensive suite of products, including, among other things, E2E services involving pre-carriage and on-carriage, multi-modal transport, diverse value-added services, and specialized warehousing and sophisticated storage solutions.
Procuring such a broad range of services necessitates working with a large number of contractors and sub-contractors, each with its contracts and scope of service coverage.
Given the sheer number and scale of vendors involved, there is a complete lack of uniformity and standardization in quotes received from vendors.
Vendor quotes can be provided in the form of emails, excel files, word documents, and pdf files or can be retrieved from websites or portals.
Rates can also be in different currencies, and either subject to various surcharges and accessorials or can be all-inclusive.
Other variable factors include validity period and credit terms.
To deal with the quantum of work, LSPs establish dedicated procurement departments specializing in different modes of transport and scope of services.
This means setting up teams for procurement of ocean shipping rates, air transport rates, and rail and road haulage rates, besides costs for warehousing and other value-added services such as customs clearance and export facilitation.
These teams are led by qualified and experienced industry professionals whose primary responsibility is to be cognizant of market conditions and trends, keep abreast of the latest regulatory and operational requirements, and negotiate the best possible rates from all vendors.
Here again, due to non-standardized processes and multiple stakeholders, the work of the procurement teams is highly manual in nature, involving a lot of coordination to procure costs and appropriate interpretation to ensure that the data is utilized correctly.
As is obvious from the above, given the range of costs involved, as well as the lack of uniformity thereof, quoting consolidated rates for services offered is a cumbersome and time-consuming process.
Limitations of the Traditional Rate Management Processes
Given the manual and sub-optimal nature of the current rate management process, there are multiple challenges that Logistics Service Providers face, as enumerated below:
1) Time required for preparing quotes and offering to customers
Considering the numerous data sources and formats, calculating a consolidated quote is a time-consuming process, taking up to three days, depending on the modes involved, the origin/ destination, and the cargo and service type.
In today’s fast-paced era of modern trade and commerce, such delays can spell the difference between winning the business or losing it to a competitor who can quote faster
2) Highly manual task, requiring time and effort
Compiling data on various costs and activities to generate a quote involves trawling through masses of disparate data, a highly manual task requiring considerable labor and effort.
The procurement department will have to expend considerable resources and time for each quote, prolonging the average quoting times.
3) High Chances of errors and inaccurate quotes
The nature and inherent inefficiency of the manual processes increase the probability of errors and, consequently, the probability of an inaccurate quote.
The implications of such inadvertent errors could be severe, ranging from potential revenue losses due to underquoting or loss of business in case of uncompetitive rates.
4) Availability of the latest information and spot rates
In the current volatile global transportation markets, where space is scarce and commands a premium, rates change almost daily. Carriers are quoting spot rates with extremely short validity periods.
This means that rates get outdated in a short span of time, sometimes within a matter of a couple of days, wherefore the procurement team needs to constantly obtain updated costs and rates.
With the manual way of working, it is extremely difficult to keep track of the latest rates and incorporate them while in quotes to customers, thereby increasing the probability of incorrect quotes.
5) Difficulty in standardizing information while preparing quotes
The disparate data sources and formats make it difficult to standardize and interpret rate information, which is essential for quoting to the customer. This delays responses to customer inquiries, consumes more time and effort than is necessary, and increases the chances of errors in quoting.
6) Non-standardized quotes make it difficult to compare across vendors
When working with multiple vendors providing services of similar scope and nature, rates are an important criterion for evaluating and finalizing vendors.
With the disparity in cost quotes and other contractual terms and data being provided in different formats, it can be extremely difficult to compare between different vendors.
7) Multiple pricing desks in each location, resulting in a lack of control and oversight on process and prices quoted
Given the workload and nuances involved in manual rate management processes, companies are compelled to invest in expensive resources across their offices.
This effectively decentralizes the pricing function, leaving the management with little visibility into the overall process and efficiency thereof, thus hampering their control over pricing and impeding their ability to ensure that minimum price/ margin guidelines are adhered to.
Key Benefits of a Rate Management System
Rate Management systems offer robust functionalities to automate and streamline the process of procuring various costs (from all vendors) and retrieving the relevant costs to offer prompt quotes in response to customer inquiries.
Using a Rate Management System affords a freight forwarder the following benefits:
- Timely and accurate quotes
- Fast processing of complex cost structures across multiple vendors
- Ensure use of the latest freight rates and surcharge levels
- Accurately deal with intricacies arising from the usage of multiple non-standardized formats, varied contractual terms, and different currencies involved in international transportation
- Centralized pricing, enabling monitoring and control over the entire pricing process
- Considerable savings in terms of labor and effort
- Faster turnaround time for customer inquiries increases the chances of winning the business
- Single pricing system, which also offers reporting functionalities, thus enabling management to monitor and evaluate historical data
Solutions Available in the Market
Over the past few years, a plethora of technological solutions aimed at the logistics and maritime transport industry have flooded the market, each attempting to address certain elementary challenges and smoothen operations.
Rate Management Systems have become increasingly popular, especially in the small and medium-sized freight forwarding community, which are keenly aware of the need to optimize their rate management and quoting process.
Freightify is a prominent player in this segment, with its RMS solution covering all modes of transport, as well as pre and on-carriage. With the ability to easily process complex pricing and alternative routes, as well as handle different rate sheet formats and manage different currencies, Freightify provides the ideal solution for rate management needs.
For more information, feel free to book a demo with our logistics experts to understand how we make it possible for you.