In today’s competitive shipping environment, ocean freight plays a significant role in the financial health of your business. Whether you’re managing a small or large volume of shipments, securing the best possible rates is crucial. But with fluctuating prices and numerous variables at play, how can you ensure you’re getting the best deal on your ocean freight? The answer is ocean freight benchmarking.
In this post, we’ll explain how freight benchmarking works, its importance, and how your business can benefit from regularly assessing your freight costs. By understanding how to benchmark ocean freight, you can make smarter decisions that improve your bottom line.
Why Review Your Freight Rates?
Before jumping into the specifics of benchmarking, it’s essential to know when and why you should review your ocean freight costs. Several triggers indicate that it’s time for a freight review:
1. Service Performance Issues
- Falling on-time delivery rates
- Consistent delays at critical points in the supply chain
- Rising detention and demurrage fees
2. Technology Gaps
- Lack of API connectivity with your transportation management system (TMS)
- Manual tracking processes instead of automated real-time visibility
3. Business Evolution
- Year-over-year volume increases
- Expansion into new markets or distribution centers
- Shifting to omnichannel fulfillment
4. Market Changes
- Rate fluctuations in key shipping lanes
- Changes in fuel surcharge structures
- New ESG (Environmental, Social, Governance) reporting requirements
Regular benchmarking ensures you’re staying on top of these indicators and can take action before small issues snowball into larger problems.
What Exactly is Ocean Freight Benchmarking?
At its core, ocean freight benchmarking is the practice of comparing the rates your company pays for ocean freight against the rates paid by similar businesses. By evaluating market rates, you can determine if your current prices align with industry standards, identify potential savings, and avoid overpaying.
Benchmarking provides valuable insights, allowing you to better negotiate with carriers and avoid inflated prices. It’s a tool that gives you the data needed to enter contract negotiations with a clear understanding of what you should be paying.
How Can Ocean Freight Benchmarking Benefit Your Business?
Benchmarking your freight costs offers several significant advantages. Here’s a look at some of the most important benefits:
1. Better Freight Spending Decisions:
Benchmarking gives you a clearer picture of your freight expenses by comparing them with those of similar businesses. This analysis helps answer important questions like, “Am I getting value for the prices I’m paying?” and “What is the reasonable price range for our specific shipping needs?”
2. Competitive Freight Rates for Your Routes:
Whether shipping by sea, air, or land, each shipment follows a specific route or “trade lane.” Benchmarking allows you to understand pricing norms for these routes, enabling you to set target rates with your vendors and avoid overpaying for any lane.
3. Predict and Manage Pricing Trends:
As you collect benchmarking data over time, you’ll notice trends in seasonal rate fluctuations and pricing patterns. This foresight helps you plan for rate changes and respond proactively to market shifts or unforeseen disruptions.
4. Improved Decision-Making:
Benchmarking gives you a historical view of your freight costs and carrier performance. This data can inform your decisions about which carriers to use, whether to opt for contract rates or spot rates, and how to optimize your shipping strategy.
5. More Favorable Contract Terms:
Armed with benchmarking data, you’re in a stronger position to negotiate contracts with carriers. With a clear understanding of industry standards, you can secure more favorable terms and ensure that your contracts align with your company’s needs.
Best Practices for Ocean Freight Benchmarking
Successfully implementing freight benchmarking requires following best practices to ensure you get accurate and actionable results. Here are four essential tips:
1. Share Results with Key Stakeholders:
Benchmarking data is most useful when shared with all relevant teams across the business. For example, IT, procurement, and logistics teams should be involved in interpreting the data to ensure it’s used effectively for decision-making.
2. Select Relevant KPIs:
There are many key performance indicators (KPIs) you could track, but it’s important to focus on those that are relevant to your business. Not all KPIs will provide actionable insights, so it’s crucial to choose metrics that reflect your shipping profile and can drive tangible improvements.
3. Carefully Choose Your Comparison Group:
For benchmarking to be effective, you need to compare your rates to those of businesses that are similar in size and operations. Consider factors like shipment volume, trade lanes, and industry type when selecting companies to benchmark against. A consulting partner can help you identify the right peers for comparison.
4. Use Standardized Metrics:
To ensure consistent and meaningful results, use standardized metrics when benchmarking. This allows for accurate comparisons and helps you spot trends and opportunities. For example, metrics like “freight cost per kilometer” or “cost per ton per kilometer” provide a clear picture of where you stand compared to your peers.
Freight Benchmarking and Contract Negotiation
One of the most valuable outcomes of freight benchmarking is the ability to negotiate better contracts. By understanding the true market value of your freight rates, you can enter negotiations with confidence. At Logistics Bureau, we use benchmarking data to support our freight contract negotiations, ensuring that our clients get the best possible rates.
Conclusion
Ocean freight benchmarking is a powerful tool for businesses looking to optimize their shipping costs and make more informed decisions about their logistics strategy. By regularly reviewing your freight rates, understanding market trends, and using the insights gained to negotiate better terms, you can significantly improve your bottom line and strengthen your supply chain.
