How Benchmarking Platforms Help Businesses Reduce Shipping Costs
- Shipping prices are much higher than they were before the pandemic.
- Giving businesses market rate transparency, or benchmarking, can help them cut costs.
- Tech tools like Xeneta work with brands like PUMA to streamline benchmarking.
If you’re a retailer importing merchandise, COVID-19 was probably your worst enemy. The disruption caused by the pandemic has resulted in bottlenecks in supply chains that continue to persist, as shippers and retailers struggle to ensure the reliability of their supply operations bogged down by product shortages and delivery delays.
But supply volatility isn’t the only headache retailers face today. For example, shipping prices between China and the United States quadrupled from their pre-pandemic rate at the height of demand for cargo capacity late last year, according to data compiled by the platform. Xeneta Freight Rate Benchmarking. Today, Xeneta reports, it’s settled at about three times the value of what it was two years ago – still a shockingly high number.
With freight prices inflating business operational expenses, the need for price visibility becomes more relevant. Technology companies like Xeneta can help in this context.
The idea of benchmarking is simple: the shipper in question compares the ocean freight cost estimates provided to it by various carriers to the actual real-time contracted market rates (an aggregated rate based on declared offers), which ultimately helps them choose a carrier that suits their needs and budget. Although this concept has been around for ages, new technologies are speeding up the process.
Good freight benchmarking can help companies optimize operating costs and effectively plan inventory levels. “The more visibility you have into your freight process, the better you can act and satisfy your end customer,” said Jim Waters, 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.”
Rationalization of 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 for specific orders and delivered immediately. Large retailers and shippers tend to enter into contractual agreements with container shipping companies, while smaller ones often purchase cargo capacity on the spot market.
Skilfully sliding between contracts and the spot market allows companies to keep or squander their hard-earned margins. “This is where price visibility is crucial. When you talk about transparency in the ocean freight market, it’s about understanding who pays what and under what terms,” said Patrick Berglund, CEO and co-founder of Xeneta, to Insider.
For example, Xeneta’s pricing data during the peak shipping season in November 2021 showed that freight prices from the West Coast of the United States to China for companies with long-term contracts were approximately $4,700 per 20-foot equivalent unit, or TEU, while the highest prices in the market for this trade lane was the spot market which saw freight rates soar to over $14,000 per TEU. Interestingly, extreme market volatility caused spot prices to fall below long-term contract rates in the first half of 2022, reversing shippers’ fortunes within months.
These unexpected peaks and troughs in spot freight prices and long-term contracts provide shippers with visibility into price developments.
Reduce the time brands spend evaluating pricing
German footwear brand PUMA turned to Xeneta in 2019 after facing its own challenges finding capacity and locking in pricing. “It was a tough time during the pandemic. Fares were going up, available shipping capacity was getting tight and sourcing was a pain,” Peter Stockhammer, senior team leader for global logistics procurement at PUMA, told Insider.
Stockhammer said PUMA was able to prioritize a few carrier partners and choose the best fit for its freight from the list of options provided by Xeneta, reducing the effort required to build a freight benchmark each time it needed to. ship products.
“There was no real freight benchmarking before. You could only get rates by inviting multiple parties to bid on your freight tender. That meant talking to many individual vendors just to choose one part 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 beyond just freight rates, with challenges such as complex import procedures, complying with compliance rules and filling out excessive documents.
A need for collaboration
Stockhammer said engaging in “constant strategic dialogue and not jumping ship for pennies on the dollar” has helped PUMA build trust among its supply chain partners, keep costs low and ensure timely shipments.
Collaboration is key in an industry where an end-to-end transaction involves more than a handful of stakeholders, Waters said. “Logistical complexities cannot always be predicted, even with the best tools. The situation can be mitigated by leveraging collaboration between different parties, allowing companies to combine data and information from different sources throughout the value chain to “design” the visibility they need,” he said. said.