27 September 2021

Freight Waves: Dynamic rating promises increased transparency, profitability

The average logistics company still manually rates up to 40% of invoices

The logistics industry has experienced an undeniable technological revolution over the past several years. Companies across the supply chain are embracing technology to level up their businesses, automate tedious tasks and bolster their bottom lines. Still, the industry as a whole is relatively new to high-tech solutions, and at many companies, employees continue to take on some of the most time-consuming manual tasks, like rating shipments and correcting invoices.

In the logistics industry, up to half of all shipments are still manually rated, according to research from the IT experts at Sciant, an IT solution company that specializes in delivering rating solutions for the logistics industry. The team found that it takes two to four minutes to manually rate a single shipment. If a company has 1 million shipments annually and 30% are manually rated, taking two minutes each, that comes to six hundred thousand minutes — or more than 10,000 worker hours.

If companies can cut down on the number of shipments or services being manually rated, they can expect significant gains in both efficiency and accuracy. While humans will always be needed to handle special or unusual cases, utilizing technology to perform simple tasks has been consistently proven to reduce mistakes and increase profitability. That is where Sciant’s services related to dynamic rating solutions come into play.

“There are quite a lot of activities happening in freight. Multiple parties are involved in a package reaching your house. There could be on average about 6-10 activities per shipment, and to build the full end to end picture, including customer facing charges, supplier charges and internal charges, you could end up with about 20-30 charges for one shipment,” Sciant CEO Angel Mitev said. “Depending on how individual rates are managed, you could end up with hundreds of thousands of different rates being maintained in a TMS. All these rate cards will have to be maintained and regularly updated and this has to happen dynamically. This is the business problem we are solving for our customers.”

Dynamic rating is particularly useful for companies facing opaque rate changes or struggling with transparency related to profitability on a shipment level. In an industry as complex as logistics, it is common to lack visibility. This is especially true of rates, which are influenced by a variety of factors, as well as expert guidance and differences within companies themselves. The logistic companies should meet the ever-rising customer expectations, and still generate profit and growth. By improving their rates management processes, they can simplify the customer experience, and still be competitive and profitable.

“When we think about dynamic rating, we have to understand the sources of these rates. The pricing organization and the sales teams will look into capacity and demand and set rates based on their knowledge of the market. In reality, companies must also look at the cost to ensure they are competitive on the market and also profitable,” Mitev said. “One of the rate sources will be pricing teams, others will be suppliers or internal company departments. Ensuring the correct rates are dynamically applied on every shipment is a must. Regularly updating and providing users with visibility of how the different rates have been calculated is also extremely important. For example rate calculation could be subject to certain rebates or block space agreements with carriers and those also have to be factored by the dynamic calculation logic.”

Market leading TMS solutions such as Oracle Transportation Management and CargoWise One as well as new market entrant TMS systems have certain built in facilities for dynamic rating and for maintenance of rates, however, the complexity of the business, custom business processes and the complex IT landscape in logistics require customizations and integrations with number of external systems such as third party tariffs, inventory and equipment management, WMS, OMS, etc. Developing such customization in the TMS in many cases is difficult, expensive and time consuming. In many cases the TMS vendors would not agree to implement a change in their  mainstream products to cover special cases and custom processes. External rate management solutions that are tightly integrated with the TMS can provide the desired custom functionality in a faster, cheaper and efficient manner. Mitev stressed that such dynamic rating solutions like those that Sciant helps customers develop must be flexible enough to address  specific needs and issues that may arise at various companies.

Supply chains are faced with capacity shortages and challenges that are especially acute in ocean freight container shipping. With availability of containers becoming increasingly limited, costs of renting containers and equipment have gone up substantially, driving the overall cost for shipping. Infrequently updated tariffs and rates for containerized cargo (both FCL and LCL) are no longer sufficient to ensure competitive pricing and correct costing of shipments. Transit times and routing options also play essential roles in planning the shipping and determining the rates. Dynamic rating solutions could address these challenges and provide frequent updates to the rates to reflect changing market conditions.

Availability of modern APIs that enable querying of selling and buying rates, estimated transfer time and ETAs directly into ecommerce and fulfillment systems is also becoming an expectation of most customers of logistics services. In addition to improving user experience by providing tailored UI that can consolidate rate cards under one entity (e.g. a specific brand name), handle mass rate updates, dynamic rating solutions should provide API gateways and middleware platform features enabling support of multiple adapters that transform rate data in real time directly into formats desired by customer systems.  According to Quincus, a Singapore-based, SaaS platform provider that aims to resolve daily supply chain challenges by leveraging OpenAPIs and advanced data analytics to automate manual tasks and increase efficiency,  “The necessary data to make real-time decisions crosses existing point to point system connections millions of times per day,” said Quincus VP of Engineering, Jae Lee.  “The challenge to the industry is that all of this data is siloed away and not always accessible to the people, processes and systems that need it.”

Dynamic rating solutions should also include detailed reporting and BI features to help companies analyze and understand the impact of rate changes and also easily play with what-if scenarios. Such solutions also adopt machine learning and AI techniques to automatically forecast the factors that drive rates and rate changes, including general increases, seasonality and changing spot conditions.

As DHL Global Forwarding has experienced, relying on an IT standout like Sciant to source a custom built rating solution is important; systems must be responsive to complex needs without downtime or excessive intervention. “DHL Global Forwarding engaged with Sciant to deliver a dynamic rating solution that is closely integrated with CargoWise One and that is catering for the specific needs and business requirements of our global Airfreight product”, said Fernando Teixeira, VP Airfreight IT, Solutions Design, Operations & Compliance at DHL Global Forwarding. “The solution helped us optimize rating across our global airfreight business, significantly improving efficiency”, added Teixeira.

With dynamic rating, companies can significantly reduce the number of invoices that must be manually rated. Sciant found that this technology can cut the number of manually rated invoices down to just 10-15%, adding up to a three- to fourfold improvement over a given company’s previous methods. Ensuring regular rate updates, correct application of all rates and transparency in the rate calculation provides a competitive edge to those companies that have such solutions over their competitors who don’t.

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