Why Break Away from Tradition?
We all witness the ebbs and flows of market volatility—prices rocketing and plummeting like a rollercoaster on steroids. The old-school fixed-price contract? Yeah, it’s like using a map that’s stuck in the past. Market shifts render those prices useless even before they’re inked. Imagine carriers ghosting contracts because the rates just don’t make sense anymore. It’s like bringing a flip phone to a smartphone party.
For some milk runs or recurring long hauls, it might still work but what about lanes that are less frequented? Here are some less direct routes that still take you to the destination:
Enter: The Mavericks of Pricing Strategies
Eye continuous procurement, the holy grail of short-term contracts. With mini bids prevailing, shippers can keep prices razor-sharp and carriers playing ball. Next is tiered volume contracts. The base price covers the essentials, and the premium takes care of the bonus round, all while carriers ride the wave of planned and unplanned demand.
Then there is dynamic pricing. One first-hand benefit of this pricing is you get your spot market reliance right. Now, imagine a contract where the price automatically changes based on the market index. It’s like having a GPS that guides you through the ever-changing price landscape.
But before we feel this pricing revolution, let’s get real about the nitty-gritty.
Strategize Like a Pro
The Beat of Market Timing
Picture this: the freight market cycle dictates your pricing. And prices are set as market rates swell, shippers might lock in lower charges and enjoy. But on the flipside, it will influence carriers to reject freight over time. Similarly, if market volume declines when prices are set, shippers have to overpay. So, it’s catch the beat and comprehend what’s your position in the freight market cycle, when prices are set?
The Age-Old Contract Aging
Time isn’t just a number, it’s a price-changer. As contracts age, the price for the accepted amount of volume in the contract degrades – compounded by market shifts and changing networks. Eventually, shippers lean on rates that are different from the contracted pricing.
Location, Location, Location
Carriers have a soft spot for cargo-heavy trade lanes. More backhauls, easier to fetch follow-on loads after a drop, and route knowledge make this their favourite. But those low-volume regions? Carriers are willing to accept lower prices outbound from these regions rather than getting stuck and having to move empty containers.
Lane segmentation is the key. Network segments in a lane with low carrier performance are actually great use-cases for dynamic pricing. These are the lanes with fluctuating demand. On a closer look – at an individual shipment level, surge volume also gives way to alternative pricing mechanisms.
Reaping the benefits of index-based contracts requires a contract that ensures:
- Shipper’s expected costs don’t surpass what they could be with a fixed-price contract
- The accept rate of carriers is at least as high as with the fixed-price contract.
- The carrier’s received revenue matches with the fixed-price contract
Mastering the Possibilities
In the heat of tight markets, when spot prices are sky-high, fixed-price contracts lose their groove. But index-based contracts? They’re in the spotlight. Get ready for the world of index-based contracts, where costs drop and savings soar.