Three Imperatives for Managing Carrier Rates
As the annual freight rate contract negotiation process is underway, it is imperative that shippers fully evaluate options across carriers utilizing knowledge of historical changes and past performance in their trade lanes. The complexity of freight rate contracts places a strong burden on shippers and NVOCCs to comprehensively understand the proposed rates and surcharges, including any exclusions or exceptions. Reconciling all of these factors for a comparable review across carriers is a difficult objective for both the partners receiving RFPs to quote and those reviewing responses. In addition, understanding the carrier's historical on-time performance for a lane is a key factor in deciding whether to award the carrier volume for that lane.
So, how do you work towards ensuring your global shipments are contracted with a cost-effective and reliable provider? How do you quickly and accurately quote lanes in an RFP or analyze the response to an RFP? When seeking answers to these questions, shippers and NVOCC's should consider the following as imperatives for managing carrier freight rates.
1. Standardize and centrally manage carrier contracts.
Carrier contract formats and verbiage regarding the conditions for applying tariff surcharges varies greatly. Converting the various textual contract formats into a standard structure where services can be easily compared across carriers enables a solid foundation for centralized management and cost comparison. What this means for your company is a simplified and more efficient process for accessing accurate, fully calculable surcharges and rates to identify the best options.
2. Lock in surcharges to prevent unforeseen cost increases.
Understanding the variability of each of the many accessorial charges and applying specially negotiated business rules adds another layer of complexity when preparing and reviewing RFP responses. Accessorials should be negotiated as inclusive whenever possible to prevent increases due to conditions such as peak season surcharges and general rate increases. When negotiating fixed surcharges, utilize reporting tools to better understand historical fluctuation trends for surcharges over time. This is critical information for determining the level at which a charge should be locked in.
3. Understand past performance for future improvement.
Another key factor for committing shipping volume to a provider is understanding the past on-time performance and space availability for each lane. By comparing the on-time delivery metrics to the committed transit times, you can determine which provider can most reliably deliver your shipments on time and prevent bottlenecks throughout the supply chain. In addition, assigning carriers to a routing guide ensures that your organization executes against the plan by utilizing the preferred carrier with the best rate and service options available.
In summary, keeping these imperatives in mind helps you firmly establish goals for your carriers and make informed contract decisions with your providers and define service level objectives for the coming term. Over the course of these contracts, the imperatives also set a foundation for continuous improvement programs and feedback into future sourcing decisions. Finally, you will be able to accurately analyze the RFP process, improve contracting decisions, and, ultimately, secure the best carrier with the best service for your requirements.