Online freight rates

Finding and comparing online freight rates is hard. We support transparency in the freight market and believe that offering services and rates online is a vehicle for making freight services more accessible, as well as reducing cost and waste for all parties involved in international transportation (customers and service providers alike). In this post we try to explain some of the considerations of online freight rates from both a seller’s and a buyer’s perspective.

The seller’s perspective

A bit untraditional, we will start with the seller’s perspective. The reason being that for this particular topic, it is important to understand considerations for a seller of freight, in order to discuss benefits and concerns from the buyer’s perspective.

The seller of freight could be shipping lines, airlines or freight forwarders (see Roles in International Transportation for more details). In this blog, we only focus on freight forwarders considering online ocean freight rates for small shipments (defined as shipments of less than a full container load – see Less than Container Load for explanation). Similar considerations can be made for the other segments, with main differences being size of transactions and market volatility.

A main concern for freight forwarders is the transparency and the failure to offer services at market level. This concern, however, is only partly valid. Reality is that many freight buyers already compare freight rates in the off-line market by sending quote requests to multiple forwarders and comparing responses. The online market does offer quicker access to comparison, but conversely, it also offers participation in an unlimited number of quote requests without allocating any resources. This would ultimate reduce the cost of sales, and thereby enable the freight forwarder to maintain a healthy margin even on shipments concluded online.

The freight market is a volatile market. Less than container load freight rates will often follow the full container load market, as the main cost component of the port to port shipping is ocean freight and surcharges. Online freight rates can reduce the transactional cost of adjusting freight rates, as any adjustments can be made in minutes and are immediately available to customers.

Freight forwarders have certain trades in which they are particularly strong, and have certain geographies where the have sales teams deployed. Offering freight rates online, allow the forwarder to display strong trades to customers in locations where the forwarder does not have sales. In principle, the online sales rates become an additional sales channel without any associated fixed cost.

Lastly, freight forwarders deciding to go online with their services and rates send a strong signal to their customers and the market that they support transparency and they are ahead of their industry when it comes to e-commerce and online presence.

The buyer’s perspective

The buyer of freight is typically either the shipper or the consignee, depending on the commercial terms agreed between the parties (see Trading Terms (Incoterms) for details on commercial terms). The benefits of online freight rates to the buyer of freight include easy access to rate information, fast comparison and time saved on procurement and negotiation. If the buyer of freight sell their product including shipping (for example a manufacturer selling on CIF Terms), however, the transparency in the market can be a disadvantage, as the buyer of the product will then be able to research the actual freight rates and estimate any margin added by the seller of the product.

Be aware, however, as most online freight rates are not easily comparable. The reason is that different website can include different freight components and that most transportation providers offering their rates online refer only to the actual freight, which is a minor component of the total shipping cost in today’s market. The larger components, which are considered variable and therefor often not published, would be surcharges on freight, such as bunker and currency adjustment, and origin and destination charges (see explanation of Costs for details).

Most consignees (receivers of cargo) would be familiar with the situation where a product has been bought including freight, only to discover a significant cost at destination when the cargo is collected. The reason is that the shipper has paid for freight up to the port of destination, but trucking from the port to a warehouse, de-stuffing and any handling needs to be paid separately (see The seven steps of International Shipping to learn about destination charges). Reality is that the receiver has little choice, as the destination handling agent is decided already at the time of shipping, i.e. by the freight forwarder nominated by the shipper.

This situation is unfortunate – especially from a receiver’s perspective. Initially, the freight paid as part of the product cost is typically above market levels, as the shipper needs to be covered for the disbursement of the freight costs. And secondly, the receiver feels helpless in any negotiation of destination charges, as the destination handling agent requires payment prior to cargo release. Online freight rates can be an aid to address the first challenge, to bring clarity to what the actual shipping cost is. Regretfully, most websites offering online freight rates do not address that latter, as complete freight including charges at origin and destination will seldom be available, and if they are, often subject to a number of additional charges.

Online freight rates for shipments of less than container load permit freight buyers to quickly assess whether shipping full container makes sense. If, for example a freight buyer is shipping a 20’ container with 15 cubic meter of cargo, it might make sense to ship with a freight forwarder who offer a consolidation service in that same trade. A quick calculation based on the online freight rates will uncover the benefit, in addition to the time saved on having the information readily available online.

Lastly, procuring ocean freight for smaller shipments can be a time consuming task unless you have a significant amount of shipments with a contracted forwarder. For that reason, traditionally smaller shipments (less than a full container load) ship by airfreight, and often at 10-20 times the cost of an equivalent ocean freight solution. Online freight rates for less than container load shipping can address this. Adding the option to place online bookings makes ocean freight a real alternative to airfreight for all those shipments, which are not urgently required at destination.

Can online freight rates be guaranteed?

Online freight rates should be accurate and complete. There should be no later surprises if a rate is established and a shipment booked online, as long as the information provided at the time of the booking is accurate. From a freight forwarder’s perspective, the rates can be calculated and they can be fixed, at least for shipments handled 30 to 60 days out in the future. It is the freight forwarder’s job to hedge any currency or fuel risk and to ensure that procurement of services from transportation providers in the supply chain is completed timely to maintain costs so the cargo can be handled profitably.

If, however, in contrary to traditional pricing, the freight forwarder is required to offer their complete freight rates online, and not to make any additional invoices or claims later in the process, they need to be compensated for it. Essentially, this would transfer some risk from the buyer of the freight to the seller of the freight, in comparison with a normal offline market. If exchange rates fluctuate or fuel cost surge, the forwarder is exposed, if care has not been exercised. The reward for that transfer of risk could either be an increase in rate, or a payment guarantee, which enable the freight forwarder to reduce their cost elsewhere in their process.

The payment guarantee could work via an escrow feature, where the payment is locked with a third party till the shipment has been delivered, or it could simply be a payment at the time of the booking, against a guarantee that no additional charges will appear later. The pre-payment is especially effective for smaller payments (say USD 2,500 or less), where the cash flow impact for the buyer of the freight is limited, and the benefit of the pre-payment outweighs the risk of fixing the rates for the freight forwarder. This particularly the case in areas where additional invoicing, collection and follow up on outstanding payments is a significant financial burden for the freight forwarder. The escrow feature would normally not be preferred, as this would invite additional cost in financing the forwarder’s working capital.

In order to maintain the rate level, and to guarantee that online freight rates, including any origin and destination charges, pick-up and deliveries, the payment for the freight should take place at the time of the booking – similar to when booking an online air ticket. As the freight is typically marginal compared with the product cost, this disadvantage to the freight buyer is however significantly outweighed by the benefit of knowing the total cost of the transportation and being able to compare and buy freight in a few clicks rather than through a long search and negotiation process. Even if an offline negotiation process yields better rates than what is available online on smaller transactions, the cost benefit normally would not justify the time spent.

Where to find Online Freight Rates

In the Knowledge Centre about Finding the best forwarder with freight comparison websites, a number of online resources are discussed. At Transporteca, we ensure that all costs are enclosed. That is why the freight forwarders participating on this booking portal guarantee that there are no additional costs surprising customers booking online, as long as the information submitted while booking is accurate. As assurance, they have offered that customers can come back to the portal and leave a rating and a review that will be available to the public.

To get complete clarity of all the different cost components in the shipping process, we recommend reading The Seven Steps of International Shipping.