Why Freight Benchmarking Is Integral To Supply Chain Planning
Jun 19, 2017
Businesses are faced with a rapidly changing global environment. To respond in a timely manner, an agile supply chain is a necessity. However, it requires freight benchmarking and market intelligence. Together they help businesses manage costs, understand possible competitive threats as well determine trade lane options.
No matter how big or small a shipper is, benchmarking and freight intelligence should always be a part of supply chain planning.
According to the consulting company, Bain & Company, the objective of benchmarking is to find examples of superior performance and to understand the processes and practices driving that performance.
Companies then improve their performance by tailoring and incorporating these best practices into their own operations.
What is Freight Benchmarking?
Succinctly put, freight benchmarking is the comparison of the ocean freight costs you pay against the actual real-time contracted market rates.
This process is done through the review of your own freight rate history and the carriers used, in relation to the current market rates for the specific trade lanes and port pairs.
Benefits of Freight Benchmarking
Freight benchmarking has a myriad of benefits which can be categorised as below.
Complete analysis - Freight benchmarking allows you to have a complete analysis of spot vs. long-term contracted rates by measuring freight averages over time.
If properly analysed, a freight benchmarking study will provide valuable insight into the competitiveness of your company's actual freight rates.
Enhancements - It also allows you to negotiate significant enhancements to your carrier rate agreements while also helping you identify the rates you need to maintain your customers and be relevant in the market.
Understanding - Benchmarking will also help you to understand, visualise, control and standardize accessorial charges and other surcharges across your customer base.
Varied applications - Such benchmarking can be applied across your freight business units, local and regional markets, multimodal transport systems, trade lanes to identify and avoid potential root cause issues and allow you to evaluate the contracts, service providers and practices and promote more cost savings to you and your customer.
What is Market Intelligence?
Market intelligence may be defined as a set of external data that a company about a specific market or sector of industry.
In terms of freight shipping intelligence, knowing who is who in the market (whether it is carriers or your competition), what are their service routes, patterns of trade, the rates in the market, volatility, stability, sustainability.
Freight market is a dynamic market and a customer can face various pressures and influences both from within the company and outside in terms of improving costs, service, being able to satisfy their customers with the available infrastructure and ensure continuity of their supply chain.
In terms of external forces, currently with the shipping and freight market being so fragile and fragmented, customers need to keep up with the constant changes in the market, understand why things are changing and navigate these changes successfully.
In terms of internal forces, freight companies and shippers need to understand and manage the freight spend. How it is being allocated, to which partners and whether those partners provide the required value to the company and the freight spend allocation.
Benefits of Freight Shipping Intelligence
There are a number of benefits in using freight shipping intelligence including:
- Many BCOs and OTIs use freight shipping intelligence to improve their freight processes. Regulatory changes also put pressure on the BCOs and OTIs in terms of costings and the companies need to be up to speed in being able to manage these changes.
- Freight shipping intelligence is also used in understanding how the market shifts and how much of inventory levels has to be maintained and how often order fulfilments may be required.
- Provides an understanding for startups in which areas of the freight market they should enter and how the current market is in that area.
- Freight shipping intelligence is also of equal importance for established companies that don’t have business in a certain area and wish to find out more information about that specific area before they make the importance.
- Identifying what is the market rate for a certain zone/area which saves time in repeatedly securing rates from the carriers.
- Market intelligence also plays a major part in identifying who makes it to your core carrier list and who doesn’t as things constantly evolve.
Importance of Market Intelligence in Decision Making
Decision making is something that could make or break a company’s progress and every decision maker within an organisation, whether it is a C-Suite decision or a local decision on which carrier to book your freight with, requires a market-oriented approach and should have the relevant market intelligence at hand before they make these decisions.
The freight market intelligence will help these decision makers gauge and identify potential problem areas both at a tactical-level or at an operational level and some of these problem areas may include calculated risks such as transportation fuel programs, carrier procurement cycles and payment terms, or include other broader supply chain decisions.
Why Analyzing Constant Changes In The Ocean Freight Market Is Important
By doing these important analyses on an ongoing basis, shippers will gain a better understanding and insight into the markets they are serving and, therefore, become proactive instead of reactive to the constant changes in the ocean freight market.
Furthermore, by benchmarking, shippers will be able to gather data to determine if they are receiving the best rates as well as utilizing the right carriers and ports. Also, they will likely gain a better understanding of contract terms.
Shippers may also gain a competitive advantage by not only achieving the most favorable freight rates but also identifying trade lanes in which they could further lower costs and reduce time in transit.
Freight Shipping Intelligence: How To Identify Opportunities
In addition, shippers will also be able to identify additional opportunities such as potential partners, new services and/or products as well as expansion into new geographies.
Benchmarking and market intelligence offer many benefits and thanks to technology developments one can automate much of the process. However, before one jumps into this, one must decide on a few key points:
By planning and implementing a benchmarking process, shippers will receive valuable data that can be analyzed and utilized a number of ways such as to determine how well shippers are performing in the market, can use it as a competitive advantage, can identify and evaluate new business opportunities. No matter the size of the shipper, benchmarking will level the playing field by allowing big and small shippers to compete on the same level.