Instant container quote momentum doesn’t guarantee dynamic pricing

Instant container quote momentum doesn’t guarantee dynamic pricing

Forwarding software providers and NVOs say instant quoting doesn

Online quoting, booking, and payment for ocean shipping is no longer a novelty, but even as logistics managers increasingly weigh their digital options, they aren’t getting truly dynamic pricing, and may never. And more significantly, instant quotes — whether backed by dynamic pricing or not — have consequences on the businesses of intermediaries used by a wide cross-section of shippers, according to numerous logistics technology experts. 

There’s a difference between booking a static rate and one that changes daily, hourly, or minute to minute. That difference will become more apparent as the number of options available to shippers via container lines, global forwarders, and non-vessel-operating common carriers (NVOs) expands.

Four container lines  — CMA CGM, Evergreen Line, Hapag-Lloyd, and Maersk — offer an instant quoting and booking platform available to freight buyers. Uptake of these channels represents 11 to 12 percent of all weekly container volume at Hapag-Lloyd and Maersk, according to industry analyst Lars Jensen, CEO of Sea-Intelligence Maritime Consulting.

As container lines gravitate toward more online interactions with customers, be it direct with shippers or via forwarders and NVOs, simply offering rates digitally is the first step. And while dynamic pricing is the eventual target for those tools, a rate that changes constantly will have process implications for intermediaries and the shippers that rely upon them.

“There is a big difference in ‘spot’ products today,” Laura Finbow, regional account director for Europe at logistics software provider Catapult International, told JOC.com. “Some are simply quite static ad-hoc rates that are now being made available via [application programming interfaces, or APIs]. The new products, like Maersk’s, include two-way commitments and/or penalties and are dynamically priced, meaning fluctuating regularly on the basis of a number of factors.”

Finbow said those factors are today “quite basic: capacity and forecast.” In the future, container lines will likely have the ability to include more factors, such as manufacturing output, weather conditions, port congestion, and demand spikes, into their pricing calculations.

It’s encouraging that carriers are making any type of spot rate available by API, she said, because that solves a long-term issue of speed to market for forwarders and integrate into forwarders’ platforms, such as Catapult’s, Finbow said. Catapult provides freight rate and contract management tools to forwarders and NVOs.

The integration hill to climb

The challenge for forwarders wanting to integrate these tools, Finbow said, is related to the dynamic nature of the rates. Most spot rates are generally valid for one to four weeks. So rates with a shorter, or virtually zero, validity period require a forwarder to either sell it to a shipper immediately or use it as a decision support data point for hedging if their rates differ significantly from instant quoting platforms or other benchmarks. Otherwise, the forwarder needs to procure a rate with longer validity.

“A major opportunity for freight forwarders to increase margins using dynamic spot products is to compare their contract rates that they have used for quoting and spot rates at the time of booking execution and select the most profitable option,” Finbow said. “But many are not ready to take advantage of this. The colleague executing the booking does not know if there are underlying reasons a specific provider was used to base the quote on, such as shipper preference, routing, transit time, incentive, vessel flag, free time, or terms and conditions.”

Finbow sees using a platform as the way for forwarders to navigate these process issues related to dynamic quoting. They can then “get their spot rates and contract rates in one platform to compare prices and [terms and conditions], giving all the information to make the decision to all parties,” she said.

Alan Baer, CEO of the NVO Ocean Wide Logistics, said he believes the market could not work with a scenario where all capacity is dynamically priced, with rates changing daily.

“[Even] if the market were to work on rolling quotes valid for 30 days, this too would be problematic as rates searched today with a validity of 30 days might be different tomorrow, with the only change being an expiration of April 2 or April 3,” he told JOC.com.

Although Ocean Wide does provide online quotes by port pair to shippers that want them, Baer is not a fan of the approach because it “removes any discussion of what you as the customer really needs as part of your supply chain.”

“The issue with all instant quoting systems is that you never know what you are buying,” he added. “The questions of equipment, space, which string the price is valid on has not been resolved. When you look at the services provided by an NVO, the nature of a price is perhaps 10 to 20 percent of the overall relationship. We provide multiple sailing options, multiple pricing options, credit, documentation solutions, overseas networks that actually reply. All of these go way beyond simply supplying a rate via a computer screen interaction.”

A lighter customer touch? 

Baer said that container lines moving to models where spot rates are offered dynamically might counterintuitively be creating less interaction with the shipper, a perspective bolstered by Maersk telling JOC.com that the majority of uptake from its digital spot product is from forwarders.

“They are eliminating any strategic discussion with clients and simply allowing the market flows to essentially dictate their pricing,” he said. “[This] further distances the [container line] from their actual clients.”

Container lines offering instant quoting capability say such tools give them direct access to segments of the shipper market they ordinarily would not have and provide a cost-effective means of doing so in that online tools require relatively little sales support. The carriers also argue that providing online instant quoting and booking is a way for them to remain relevant in a commercial environment where e-commerce is becoming the norm, not the exception.

Baer, however, said online quoting can create friction among NVOs based on the availability of the rate to any party. “Is it truly neutral where NVO A/B/C all receive the same rate as would a [beneficial cargo owner, or BCO], or is the login tied to tiered rates, where the BCO gets $100, NVO A $125, B $150, and C $200?,” he said. “This would allow A to be predatory against C even if C already has the business, while at the same time driving down the actual return for the [container line].”

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.