freight benchmarking

Freight Benchmarking: Elevating Supply Chain Standards

Author Name: Basundhara Choudhury
Post Date: 2021-01-14
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Reading Time: 4 minutes

We are in a swiftly changing global environment, with businesses crawling out of the wreck that the pandemic had unleashed upon the world.  The uncertainty that loomed large, throughout the year, has driven companies into prioritising agility of supply chains like never before. Amid such a grueling business climate and instability in freight rates, Freight Benchmarking has emerged as a welcome solution for enabling businesses to manage costs, explore trade lane options and much more. In this feature, we explore the scope of Freight Benchmarking in India, underline developments made in the country and understand how it can benefit India’s fragmented, volatile logistics and supply chain sector.

An agile supply chain is the necessity of our times, dictated by the uncertainty of the pandemic and the high business losses thereafter in its immediate aftermath. No matter how big or small a shipper is, freight benchmarking has emerged as an imperative part of supply chain planning.

Irrespective of whether one is a big or a small shipper, benchmarking rates is one practice that will help save money and additionally, help in gaining valuable insights, understand competitive threats and identify new business opportunities.

According to the consulting company, Bain & Company, the objective of benchmarking is to find examples of superior performance and to understand the processes and practices driving that performance.

Companies then reflect upon and improve their performance by incorporating these best practices into their own operations.

What is Freight Benchmarking?

Freight benchmarking is the comparison of the ocean freight costs one pays against the actual real-time contracted market rates.

This process is done through the review of your own freight rate history and the carriers used, in relation to the current market rates for the specific trade lanes and port pairs.

The Freight market is a dynamic market. In terms of external forces, currently with the shipping and freight market being so fragile and fragmented, customers need to be updated with the changes in the market, understand why things are changing and navigate these changes successfully.

In terms of internal forces, freight companies and shippers need to understand and manage the freight spend-how it is being allocated, to which partners and whether those partners provide the requisite value to the company and the freight spend allocation. 

Freight Benchmarking Scenario in India: The advent of LoRRi Benchmark

Leading start-up LogisticsNow had recently rolled out the first contracted truck rate benchmark on its platform “LoRRI”.

LoRRI Benchmark provides the cost at which one can connect a district or a city, using which truck-type, which transporter can move the cargo, among others. It provides data for 20,000 routes, over 80 truck-types, and over 650 transporters.

Lack of reliable and readily accessible information for contracted freight rates in road transport; absence of national reach, and need for a single neutral platform that provides freight rates and logistics service providers or transporters pan-India necessitated the birth of a freight benchmark in India, says Raj Saxena, Founder and CEO of LogisticsNow.

“Built as a national freight benchmark, it aims to synchronise the industry by providing an integrative freight intelligence layer”, shares Mr Saxena.

“Industry can drive cost efficiencies of up to 10% by leveraging such a national benchmark. Through its Data driven Business development channel, it seeks to acquire new customers and enable efficiencies through return loads / backhauls. Over time, will enable efficiency including matching demand and supply at scale for 20,000+ lanes across the country and grow the overall logistics market.”

~Raj Saxena, Founder and CEO of LogisticsNow

The LoRRI benchmark will also prove to be instrumental in building brand recall and brand reputation, he adds.

Benefits to transporters:

The presence of a Freight benchmark can certainly help towards cost regulation and bringing down the unpredictable freight costs that dominate the market.

“Before quoting, the Transporter has to think twice; it is the sentiment that drives the market.  If the demand is high, naturally, the prices go up.  Freight benchmarking will help rationalise the market to some extent.”

~R R Padmanabhan, Director, Exim Academy

By planning and implementing a benchmarking process, shippers will receive valuable data that can be analysed and utilised a number of ways such as to determine how well shippers are performing in the market, can use it as a competitive advantage, can identify and evaluate new business opportunities. No matter the size of the shipper, benchmarking will level the playing field by allowing big and small shippers to compete on the same level.

Gaurav Jaithliya, Co-founder and Chief of Strategy and Investments, Shadowfax Technologies offers his insights on how Freight Benchmarking will emerge as the necessary measure for cost-savings in the present business climate.

“The business environment is rapidly changing, and an agile supply chain is a prerequisite in order to ensure timely deliveries. Measuring the performance of different logistics parameters across horizontal and vertical segments is imperative to identify and bridge gaps and maintain service levels”, he says.

“A freight benchmark will give way to better efficiency in operations leading to cost savings. It has a multitude of benefits for the transporters. It will allow the service providers to have a comprehensive assessment of spot vs. long-term contracted rates by assessing freight averages over time. Benchmarking will also assist in understanding, visualising, controlling, and standardizing accessorial charges and other surcharges across the customer base.”

~Gaurav Jaithliya, Co-founder and Chief of Strategy and Investments, Shadowfax Technologies

The challenges that will arise from setting a Freight Benchmark

Despite the plethora of benefits, Freight benchmarking is not the sine qua non for bringing together a fragmented market. For a country as vast as India and given the fragmented, volatile nature of the market, setting a Freight benchmark may not be enough. Mr Padmanabhan echoes these concerns.

“The market dynamics is volatile in a semi organised market in India.  Sometimes, the benchmark may be awfully inadequate to reflect the market”, he shares.

This is an abridged version. To read the full article, click here.

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