5 Ways Shippers Can Profitably Manage Freight Prices in a Volatile Market
Ocean and road freight prices fluctuate considerably today. With road freight, the fluctuations are often attributed mainly to high spot market activity. Several factors affect them. For example, there may be driver shortages, delayed delivery for vehicles and more. Some companies believe that the solution to stabilizing prices is using contracts.
With ocean freight, logistics experts are actually warning against signing long-term contracts with carriers because of a high level of uncertainty in the industry. However, capacity utilization should be a top focus for ocean and road freight. Improving utilization of capacity is an important change that will help solve problems in the future. These are some ways that shippers can manage price fluctuations during times of volatility.
- Reevaluate Suppliers
After all the recent disruptions in ocean freight, many shippers are reevaluating where they source supplies. Those disruptions highlighted the errors in relying heavily on certain popular ports. By volume, ocean freight carries about 80% of goods today. It is likely to remain the top form of global freight transport. Instead of relying only on one country for sourcing supplies, many shippers are looking to supplement their current strategy with additional suppliers in Europe or Southeast Asia. Doing this may help improve the competitiveness of shipping lines by building capacities.
- Explore Dynamic Pricing
This new pricing method is one that many entities have worked hard to encourage. Since linear models rely on historical data, they are unreliable in today’s changing market. Dynamic container pricing uses modern technology that allows real-time optimization based on both current and historical data. It considers current demand, port congestion, fuel costs, vessel capacity and much more. Using all these important factors, it can improve pricing issues. Dynamic pricing is also useful today in LTL shipping. For some larger shippers, switching completely to dynamic pricing may be tough. They may prefer the predictability of standard contracts and the benefits they offer for budget planning. However, dynamic pricing can be incorporated alongside standard contracts for automatic discounted rates when there are improvements in spot dynamics.
- Optimize Lanes
One important consideration is lane optimization. There are several aspects of lanes to consider. For example, capacity, intermodal transport, carrier type and other factors can affect prices. By considering more comprehensive information, shippers may find new ways to save. Also, taking all nuances into consideration, companies can help reduce rejection rates. To make the strategy successful, it is also important to have the right data. Without supporting information, it can be easy to make incorrect decisions based on limited information.
- Increase Mini-Bid Rates
This strategy involves making mini-bids that are more appealing to carriers. Although it may sound contradictory to use this approach when carriers have more leverage, shippers can effectively lower the total guaranteed volume rates while also gaining more capacity and improving responsiveness. However, shippers must be cautious to keep their promises reasonable when doing this. If there are too many, the effect could be more instability in freight markets. It is important to also be aware of the cycle of highs and lows in the freight market. In most cases, the cycle is about 18 months. When used correctly and at appropriate times, this strategy can help shippers secure capacity, carriers, drivers, routes and more.
- Use Market Volatility Insights
Market fluctuations can happen within a matter of minutes today, and the effects they produce can reach far. Those changes affect shippers, freight brokers and carriers. With better market volatility insights, there are more opportunities to look at historical disruptions and prepare for future volatility periods before they arrive. In recent years, many companies have reported that they did not have full supply chain visibility. Cyberattacks, natural disasters and other types of events caused supply chain disruptions that negatively impacted many entities. Being able to monitor volatility through insights gives shippers more ways to make sound choices. Going back to the third point in this list, volatility insights also help improve lane optimization strategies.
For shippers, being able to monitor volatility can help them understand the impact of it on their operations. Monitoring insights can also help them reduce tender rejection rates. Additionally, it allows them to better align prices to market demands. With the ability to offer more customized services, they can better serve customers as well. In addition to getting better freight rates, shippers can build stronger partnerships that give them more versatility benefits during market changes.
Market volatility insights can also give shippers more access to capacity. Shippers can utilize those insights to lower their risks in transportation budgeting. They can improve responsiveness when issues arise, and they can have better investment protection. Shippers that intelligently use market volatility insights are more likely to become the shipper of choice for customers. That can strengthen a shipper’s reputation and brand.
Combining all these strategies can help shippers better understand market dynamics and use data to successfully navigate volatile periods without significant losses from freight price fluctuations.