Shipping prices are just another snag in the supply chain. Here's how 'benchmarking' platforms are helping companies cut costs.
August 12, 2022
2 min read
Shipping prices can be volatile. Tech companies are trying to streamline how companies evaluate rates.
If you're a retailer importing merchandise, COVID-19 was likely your worst nemesis. The disruption brought on by the pandemic saw bottlenecks across supply chains that continue to persist, as shippers and retailers fight to ensure reliability in their sourcing operations mired with product shortages and delivery delays.
But supply volatility isn't the only headache retailers have to contend with today. For instance, ocean-shipping prices between China and the US quadrupled from their prepandemic rate at the peak of freight-capacity demand late last year, according to data compiled by freight-rate benchmarking platform Xeneta. Today, Xeneta reports, it's settled at roughly three times the value of what it was two years ago — still an outrageously high number.
With freight prices bloating up companies' operational expenses, the need for price visibility comes into greater relevance. Tech companies like Xeneta can help in this context.
The idea of benchmarking is simple: The shipper in question compares ocean-freight cost estimates given to them by various carriers against the actual real-time contracted market rates (an aggregated rate based on reported tenders), which ultimately helps them pick a carrier that fits their needs and budget. While this concept has been around for ages, new technology expedites the process.
Proper freight benchmarking can help companies optimize operational costs and plan their inventory levels effectively. "The more visibility you have into your freight process, the better you can act and satisfy your end customer," said Jim Waters, the vice president of global marketing at supply-chain software company Tive. "Through a mix of data visibility, collaboration, and process automation, companies can monitor different aspects of freight in real-time, enabling them to make decisions that positively impact their bottom line."
Streamlining data from 2 key markets
Shippers can engage in two types of transactional agreements when shipping products from overseas: long-term tenders called contracts, and the spot market, where prices are agreed upon for specific orders and delivered immediately. Large retailers and shippers tend to hold contractual agreements with container-shipping firms, while small ones often shop for freight capacity in the spot market.
Skillfully sliding between contracts and the spot market allows businesses to hold or fritter away their hard-earned margins. "This is where visibility into rates is crucial. When you talk of transparency within the maritime freight market, it is about understanding who pays what and under which conditions," Patrick Berglund, the CEO and cofounder of Xeneta, told Insider.
For example, Xeneta's pricing data during the peak shipping season in November 2021 showed that the US West Coast-China freight prices for companies with long-term contracts were roughly $4,700 per 20-foot equivalent unit, or TEU, whereas the highest prices in the market for that trade lane were in the spot market that saw freight rates surge to more than $14,000 per TEU. Interestingly enough, extreme market volatility has meant spot prices fell below long-term contract rates over the first half of 2022, inverting shippers' fortunes in a matter of months.
Such unexpected crests and troughs in spot and long-term contract freight prices warrants shippers to have visibility into price movement.
Cutting down on the time brands spend evaluating rates
German footwear brand PUMA turned to Xeneta in 2019 after facing its own challenges finding capacity and locking down rates. "It was a hard time during the pandemic. Rates were going up, available transport capacity was getting tight, and procurement was a pain," Peter Stockhammer, the senior team head of global logistics procurement at PUMA, told Insider.
Stockhammer said PUMA was able to prioritize a few transport partners and choose the best fit for its freight from the rate and market analytics Xeneta provides, cutting down the effort needed to build a freight benchmark every time it needed to ship products.
"There was no actual freight benchmarking before. You could only obtain rates by inviting multiple parties to bid on your freight tender. This meant talking with many individual providers just to pick one party at the end — wasting our time and the time of several service providers," Stockhammer said. The lack of visibility and excessive dialogue involved in this hands-on process goes further than just freight rates, with challenges like complex import procedures, abiding by extracting compliance rules, and filling out excessive paperwork.
A need for collaboration
Stockhammer said participating in "constant strategic dialogue and not jumping ship for a few pennies on the dollar" has helped PUMA establish trust among its supply-chain partners, keep costs low, and ensure timely shipments.
Collaboration is critical in an industry where an end-to-end transaction involves more than a handful of stakeholders, Waters said. "Logistics complexities cannot always be predicted, even with the best tools. The situation can be mitigated by leveraging collaboration amongst different parties, enabling companies to combine data and insights from different sources across the value chain to 'design' the visibility they require," he said.