What Shippers Need to Know About the Digitization of Freight Rates

Jun 17, 2021 | Industry

Editor’s note: Today’s article was contributed by Virgil Ferreira, Chief Operating Officer, Rate Management at Magaya. With more than 15 years of experience in the logistics technology industry, Virgil brings a wealth of knowledge to his role. As Chief Operating Officer, Rate Management, Virgil is responsible for leading the execution of the Catapult strategy and shaping the company’s product vision to continue leading digitization in the shipping industry. He holds a Bachelor of Economics from Drew University.

If you’ve been in the logistics industry for a while, then you surely recall a time when nearly all of your business was conducted over the phone, via fax, hard copies, and, eventually, emails. And, while you still probably spend a good amount of time in your inbox, and maybe more time on the phone than you would like, there’s no denying the technological advances that have happened over the last few decades. Hopefully, your fax machine isn’t too busy these days as more and more processes are completed online. 

Digitization is a process – it doesn’t happen overnight. In this article, we discuss the history of digitization in the shipping industry, the current state of digital rates, and what the future has in store for shippers and carriers alike.

EDI Makes Waves

In the early 2000s, EDI (Electronic Data Interface) was popularized, marking an important step in improving efficiency and moving towards digitizing processes and data. Standard data formats for bookings, shipping instructions, track and trace, and bill of lading made it easier and faster for shippers, agents, customers, and carriers to communicate electronically. 

The widespread adoption of EDI took more than five years, at which time most of the world’s largest carriers were able to reach a place where they had one global system (or a few systems that worked well together) to cater to the needs of shippers, further facilitating the adoption of EDI.

Moving away from paper-based Shipping Instruction and Bill of Lading documents to the new, standardized digital format was one of the early wins of the transition to EDI, bringing about immediate cost savings and reducing errors commonly associated with Shipping Instruction, Track and Trace, and Bookings. Rates, however, remained on the backburner. The processes associated with freight rates are complex, and, due to market conditions, rate management remains a big challenge for many. The lack of rate transparency has many downstream impacts: freight forwarders can underquote their clients, and, from a macro view, it creates a high volume of invoice disputes, costing everyone loads of money.  We’ve been focused on driving improvements in rate management for over 10 years, always at the forefront of innovation, consistently adding new features to help resolve these headaches so that carriers and shippers can focus on moving cargo that is priced correctly to, in turn, get more competitive.

A New Era

The hard reality is many carriers are still (or, were until very recently) using legacy systems built at a time when the technology standards available were starkly different from the modern capabilities we have today. As a result, many rates are still processed via rate sheets and outside of the contracting systems. Making things even more complicated, there are ad hoc surcharges that are often kept in separate systems. Effectively combining surcharges with contracts requires tremendous data and processing power. These systems are so interconnected to their operations that upgrading or replacing them is a colossal undertaking – an expensive, multi-year, highly intrusive, and disruptive process.

How, then, can carriers leverage newer technologies that accelerate speed to market and improve customer service without requiring a complete upheaval of mission-critical operations?

At Magaya, we know that rates are core to the shipment lifecycle and the pillar to profitability for shippers and carriers alike Understanding the need for faster, easier, and more accurate transfer of rate data between ocean carriers and our shipper and forwarder customers, we built the Digital Contract Exchange (or DCX) for Catapult Rate Management. It helps carriers standardize their rate process and bring all of the rate sheet and surcharge data together.

And, because the many carriers each have their own unique needs when it comes to the technical side of sharing rates, we made sure that DCX could offer the most modern web APIs while still supporting FTP or manual email delivery of a wide variety of data formats, including CSV, XLS, XLSX, XML, EDIFACT, JSON. 

A leader innovating in the area of digital freight rates, Magaya has paved the way in collaboration with some of the world’s largest shipping lines to narrow down the formats for rates to be used with shippers and forwarders. This was an important step, as it allowed us to provide better, more timely contract management services. Plus, the standardization allows for easier comparison of rates and other data, enabling shippers to make the best decisions to grow their business.

We are now integrated with nearly all top ocean carriers, representing 90 percent of all global ocean trade.

What’s Next

Change is a constant in the logistics industry, accelerated in recent times by a widespread shortage of shipping equipment, low sealines capacity, and an increase in demand.

These factors have increased the usage of spot rates, an area that we expect to grow even more, especially as carriers improve their management of capacity. We understood this early on and have been integrating all available spot rates via DCX for clients to compare their best options.

The next evolution is the spot market becoming increasingly dynamic, rather than just a tiered approach. There are other factors to be considered, including capacity, vessel, and equipment availability – depending on the market these can dynamically change. There will be even more emphasis on mastering your forecasting process, albeit almost impossible these days.  

I’m excited for what’s coming next, as I predict the digital transformation in the industry will go even further, and fast! The spot market will become more sophisticated and I can see the development of different types of spot products to better address specific commodities or needs in the market. Just as we see in Uber or hotels.com they provide options and each with their specific terms. Also, as customers become more digital, the change will provide even more data that, when put to good use, can enable deeper analysis and more creative pricing models. There is potential to profile customers using core data points including customer loyalty, user activity searches vs. booked, etc. With rapidly evolving data science, new algorithms will be created to reach ways to create pricing elasticity models based on particular behaviors. Pricing can potentially surge up or drop down dynamically, making it more appealing for clients to more rapidly complete the rate search/quote to booking process. It’s an exciting future in which we are thrilled to participate. 

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