Benchmarking – is a business tool used by companies to evaluate and compare the current position and standing of the company against similar companies and organisations in the same business space in the market..
The point of benchmarking is to identify the performance of your company’s products and services, the processes, costs and opportunities in comparison with a bigger and better market competitor..
This could mean tweaking your company’s products/services to match or better the competitor’s offering in the market or by improving your scope of services..
Freight Benchmarking is used to compare freight costs you may be paying against what the rest of the market or similar sized companies may be paying to the same destinations.. Freight benchmarking helps in understanding the movement of the freight market, identifying the peaks and troughs and who are the movers and shakers..
Why is freight benchmarking important and when will you use it..??
Sea freight rates are one of the most volatile components within the shipping industry.. The reason for the volatility is due to various factors including bunker costs, operating costs, unclear and adhoc freight surcharges etc..
Customers, especially those with high volumes and fixed term tenders need to have the visibility and market intelligence in order for them to fix their prices.. Freight rates can vary between shipping lines even those in the same alliances on the same routes/trade lanes/port rotation..
As an example you can see the volatility in the below chart from FBX.. This reflects the volatility in the global freight rate market from Jan 2018 to Nov 2019..
Imagine a global company with multiple brands to be exported from 20 odd group companies to around 200 countries globally translating to thousands of containers over a short period of time.. With such volatility, imagine if the company has completed a freight tender and the freight rates are stuck at an unsustainable level simply because the company had no visibility or market intelligence in terms of freight rates..
Benefits of Freight Benchmarking
Not just assisting with fixing rates, but freight benchmarking can also assist the company to
- understand the carrier’s service patterns and reliability
- improve on the freight procurement and negotiation process which will help in ensuring that the contracts are finalised at sustainable rates
- have a better understanding of the market dynamics, the periods of volatility, the stock levels that need to be maintained for new or replenishment orders
- understand the movement of short term, long-term and spot rates which then provides a comprehensive insight into the rates the company is able to secure vs the rest of the market
- understand the market geographies and which areas to enter and/or avoid, which markets are more competitive etc whether you are newbie or an established trader
- have the upper edge when it comes to negotiating freight rates with the various carriers as freight benchmarking can be done on any of the different modes of transport – sea, air, road and rail
How does freight benchmarking work and how is it done..??
Freight benchmarking works on the back of contracted freight rate data made available to the freight benchmarking platforms/indices..
A lot of big international businesses support and provide their freight data to these platforms/indices who then track these rates across all major trade routes/corridors..
With the advances in digitalisation and technological advancements in the shipping and freight industry these days, there are several freight benchmarking tools/platforms and freight indices available in the market..
But due care must be taken to ensure that the chosen tool/platform will assist you in achieving your goals and not add to your administrative burdens.. Many of these platforms allow demo periods to see if the platform suits your requirements..
You need to ensure that the tool/platform used
- is reliable
- is precise
- has the pulse of the market which you can evaluate based on the data sets that are available and the coverage the platform offers
- is agile
- allows for effective cost control
- has a wide view of the market and not focused just on reducing freight rates
- is able to provide you actionable reports on the performance of the business in the market
In today’s competitive and fast paced shipping and freight environment, it is very important for the BCOs and OTIs to streamline their procurement processes and procedures in order to improve and manage their costs effectively, and compete in the shipping and freight industry..
Whatever the size of the company, using productive tools like freight benchmarking provides actionable data and business intelligence which allows you to perform optimally in your core business and keep your supply chain flowing..