Turning quotes into profit
I’ve become a little fixated lately on the rate management market, and probably for good reason.
Technological sophistication in rate management is emblematic of a true change in how the costs of transportation are secured, stored, and used. Think back to the old model of “getting a rate.”
It would involve calling around to the carriers in the applicable mode, negotiating on price and service, and then moving the shipment according to those terms. Everything manual, everything handled in a transactional, ad-hoc basis.
Rate management systems allow shippers to segment those negotiations on price and service from the act of using those rates, and that’s a good thing. It allows shippers to see their buying patterns from a high level (moving down to a level as granular as they want). It allows them to have access to the myriad rates they have negotiated in seconds; the same way we have access to plane tickets on Expedia or Travelocity in seconds.
But let’s focus a minute on what these rate management systems mean to freight forwarders and non-vessel-operating common carriers, since many of the tools out there are aimed precisely at that market.
First, let’s remember that forwarders and NVOs play a customer service role in the booking and moving of freight. They take a margin based on their ability to act as knowledgeable and customer-focused middlemen. Having access to accurate, up-to-date rates in a flash is often the difference between winning or losing a customer.
But the tools that rate management systems offer forwarders, NVOs, and even third-party logistics services providers, go beyond that power to quote quickly and accurately. Being theirs is a margin business, these service providers need an accurate picture of what each rate means to their bottom line. They need to know whether it makes sense for their company to take a piece of business.
And that’s where the leaders in the rate management space are taking things these days—providing easy-to-gather metrics by customer, region, lane, and even down to the salesperson level.
In a conversation in August with Rishi Parti, director at the rate management solutions provider Info-X, he said one of the modules NVO customers say is especially useful is a tool that allows them to quickly determine profit margin by salesperson and customer for each quote that goes out.
NVOs can look at each quote for this information, or they can look at weekly or monthly reports based on their requirements. It’s particularly important given the way many NVOs partner with agents in foreign markets. Having such scrutiny on margin—down to the individual quote level—lets them gain a measure of control that they ordinarily would lack.
Info-X’s system also lets NVOs track which customers are asking for quotes, but not using any of those rates. As Parti put it, delivering those quotes uses up an NVO’s resources, and if customers are using up those resources with no revenue coming back, the NVO needs to gain an insight into that.
Matt Motsick, chief executive officer of Catapult International, said his forwarder-oriented tool, QMS Lite, addresses the same types of metrics.
“The reason why we built QMS Lite was to provide forwarders their own ‘Expedia’ of their own international shipping rates,” Motsick said. “The administrator can manage profit margins per lane, per region, per username. They can also see their agent's quoting activity and those margins.”
Motsick, however, said customers say the primary values of the tool are a branded site and quoting speed.
“Profit margin management and communication is one of the factors,” he said. “More importantly, providing a custom-built site in the forwarder's name and offering an easy-to-use rate calculator site is gaining traction. Agents and customers love it because they don't need to wait for an email one to two days later. Quoting speed to the customer is becoming more of a priority.”
Whatever the motivations, it behooves forwarders and NVOs—particularly the middle-market ones with aspirations of growth and scale—to ensure that their ability to access, deliver and measure quotes is up to snuff.
We’ve written much about the need for these non-asset-based companies to deliver when it comes to service and technology, and this is a perfect example. Rate management is truly where service and technology intersect.
For shippers, it’s important to ensure their forwarders and NVOs are using top-of-the-line technology when it comes to delivering rates, and developing relationships with those middlemen who know the difference between a good rate and a bad one is just smart long-term business practice.
Yes, you may be able to squeeze below-market transactional rates out of those companies that don’t have a crystal clear view of profit margin down to the individual quote level, but the ones that do know the importance of technology are more likely to be able to provide other critical IT-intensive services and functions outside quotes.
The market has evolved from telephones and rate shopping to one with automated rate searches that provide line-item detail, profit margin per-quote and systematic analytics. There’s a lot of data out there, but there also are systems to capture, sort, and quickly turn it into actionable decision-making material.
As a procurement expert relayed to me in the past year, most shippers lie at the “less sophisticated” end of this spectrum, particularly those whose focus is wholly or mostly on ocean freight procurement. Using forwarders and NVOs that deploy the latest in dynamic rate management tools can help bridge that sophistication gap.
This column was published in the September 2014 issue of American Shipper.