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Rate Benchmarking

Shippers’ Rate Benchmarking of Carriers in the Transportation Industry

Shippers’ rate benchmarking of carriers is a critical practice in the transportation industry, enabling shippers to optimize their logistics costs, enhance service quality, and strengthen their market positioning. In a very competitive market many retailers, manufacturers and others find margin enhancement in a very efficient supply chain.  It is no longer just the cost of making the product but total delivery to the door that must be considered.

 

Methodologies in Rate Benchmarking

Data Collection

The foundation of effective rate benchmarking is comprehensive data collection. Shippers gather data on carrier rates, service levels, and historical performance. Sources include carrier bids, industry reports, logistics databases, shippers’ associations and the like.  On the Rail side of the industry I used Escalation Consultant’s (www.escalationconsultants.com) program, called Rail Cost Control (www.railcostcontrol.com); the data they had available was crucial in benchmarking and future negotiations with the rail.

 

Data Analysis

Collected data is analyzed to identify trends and benchmarks. Analytical tools and software can process large datasets, providing insights into rate structures, service performance, and market dynamics.  Many sectors or regions can have different market drivers, much care will be needed to compare your business to benchmarks which are on an “apples to apples” basis.

 

Setting Benchmarks

Based on the analysis, Shippers set benchmarks that reflect industry standards. These benchmarks are used to evaluate current carrier contracts and negotiate better terms.  Once a Benchmark is set that you feel comfortable with you can adjust them with various PPI measures and compare them over time with a new benchmarking analysis to see how they compare which will help to have a better understanding of the market.

 

Continuous Monitoring

Benchmarking is not a one-time process. Continuous monitoring and updating of benchmarks are essential to keep pace with market changes and maintain competitive advantage.  The transportation sector is very susceptible to adjustments in supply and demand, general economic conditions and regulations which you will need to take into account.

 

Benefits of Rate Benchmarking for Shippers

Informed Carrier Selection

Benchmarking provides Shippers with a clear understanding of which Carriers offer the best value. This informed selection process ensures that Shipper’s partner with Carriers that meet their cost and service requirements.  A deep dive into the rates of each Carrier can help to understand why they price how they do which can help a Shipper to better align with Carriers that meet their criteria.

 

Negotiation Leverage

With benchmark data, Shippers have a stronger position in rate negotiations. They can use industry standards to justify their demands and secure more favorable terms.  This will also show to the Carrier that the Shipper has done their homework and will likely lead to rates with a little less “fluff” in them from the onset.

 

Performance Improvement

By comparing Carrier performance against benchmarks, shippers can identify areas for improvement. This can lead to enhanced service quality, reduced delays, and increased customer satisfaction.

 

Risk Mitigation

Benchmarking helps Shippers anticipate market fluctuations and adjust their strategies accordingly. This proactive approach reduces the risk of unexpected cost increases or service disruptions.

 

Challenges in Rate Benchmarking

 

Data Accuracy and Availability

Accurate and comprehensive data is crucial for effective benchmarking. However, obtaining reliable data can be challenging, especially in a fragmented market with varied pricing structures.  Another Source that I used for a client was CASS, they are one of the largest Freight Payment services and therefore have freight data and rates available to them for subsequent analysis – https://www.cassinfo.com/

 

Dynamic Market Conditions

The transportation industry is influenced by numerous factors such as fuel prices, regulatory changes, and economic shifts. Keeping benchmarks up to date in such a volatile environment is an important part your Benchmarking Model being helpful and relevant.

 

 

Future Trends in Rate Benchmarking

Technological Integration

Technological advancements, including big data analytics, artificial intelligence, and blockchain, are transforming rate benchmarking. These technologies enable real-time data collection, sophisticated analysis, and greater transparency.  When you are looking to invest money in these various technologies take a look at your overall freight spend and it may help to justify the decision to move forward.

 

 

Collaborative Benchmarking

There is a growing trend towards collaborative benchmarking where shippers share data and best practices. This collective approach can lead to more accurate benchmarks and improved industry standards.  While doing such with a competitor might pose some issues it could be a good idea to align yourself with a company in an adjacent sector for collaboration.

 

 

Conclusion

Rate benchmarking of Carriers is a crucial practice for Shippers in the transportation industry. It enables Shippers to optimize costs, enhance service quality, and make strategic decisions. Despite the challenges, the benefits of effective benchmarking are substantial. As technology advances and the industry evolves, rate benchmarking will become even more integral to the success of shippers.

 

If you need any support with Rate Benchmarking, please let us know.

 

https://www.USXPorts.com

 

International & Domestic Transportation Management and Consulting

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