Freight rates are increasingly turning volatile and there's a growing desperation to overcome it. Let's find out how it's possible with smart tech solutions.
Freight rates are increasingly turning volatile and there's a growing desperation to overcome it. Let's find out how it's possible with smart tech solutions.
A McKinsey survey states that an average company loses half of its annual profits due to supply chain disruptions. One place where the supply chain disruption can prove a burden for supply chain managers is while managing freight rates.
If there’s one word synonymous with volatility, it’s freight rates in logistics sourcing. Sudden spikes in fuel costs, peak season demands, driver shortages, and unanticipated events can send shipping costs skyrocketing, creating a significant burden for businesses relying on stable logistics sourcing strategies. Imagine a toy manufacturing brand in the U.S. racing to get its products to customers before the holiday season. They’ve meticulously planned their budget, but with soaring demand for toys, rising fuel prices, and unexpected heavy snowfall, customers start panic ordering. As a result, freight rates surge, and the company finds itself needing ad-hoc freights at inflated spot rates, doubling its overall freight operations budget. This isn’t just a hypothetical scenario; it’s a reflection of the global supply chain landscape, where freight rate volatility can wreak havoc on even the best-laid logistics plans.
So, how can enterprises navigate this storm without blowing their budgets? The answer lies in adopting smart logistics sourcing solutions that enhance the efficiency of the logistics sourcing process. By leveraging strategic sourcing methods and advanced technology, companies can better manage supply chain sourcing, securing competitive rates even in volatile markets. These solutions offer strategic procurement advantages, such as dynamic rate management, real-time visibility, and automation, allowing businesses to optimize their procurement logistics strategy without compromising on cost or service quality. In this blog, we’ll explore how smart tech can transform logistics sourcing, providing the tools needed to curb freight rate volatility and keep operations on track. Let’s dive in.
What is freight rate volatility in logistics sourcing?
Freight rate volatility refers to the frequent and unpredictable fluctuations in shipping costs, which can significantly impact logistics sourcing. These fluctuations occur due to various factors, making it challenging for businesses to maintain consistent transportation costs. In the logistics industry, freight rate volatility can disrupt supply chain sourcing, complicating the logistics sourcing process and making strategic procurement more difficult. As rates swing up and down, businesses face the risk of budget overruns or missed opportunities to secure better deals, emphasizing the need for robust logistics sourcing solutions that can adapt to these changes.
The main drivers of freight rate volatility include geopolitical events, natural disasters, and shifts in global demand. For instance, political tensions can lead to trade restrictions or fuel price spikes, while natural disasters can disrupt shipping routes and availability. The recent Red Sea crisis that arose due to huge political tensions hurt supply chains. The Suez Canal connecting the Red Sea and the Mediterranean Sea contributes to 30% of global container shipping volumes. This resulted in a series of issues in logistics sourcing and freight rate determination.
Changes in consumer demand, particularly during peak seasons, can also lead to sudden rate increases. For businesses, this volatility poses significant challenges in budgeting and maintaining customer relations. Unpredictable freight costs can erode profit margins, disrupt the procurement logistics strategy, and strain relationships with customers due to delays or unexpected price changes. To mitigate these effects, companies must incorporate strategic sourcing methods into their logistics sourcing strategy, allowing them to navigate these uncertainties with more agility and foresight.
Business and tech strategies for mitigating risk in supply chain sourcing
To effectively mitigate freight rate volatility in logistics sourcing, businesses need a combination of robust business and tech strategies. The unpredictable nature of freight rates—driven by factors like fluctuating fuel prices, seasonal demand, and global events—can quickly derail budgets and disrupt supply chain sourcing. By integrating strategic sourcing methods with advanced technology solutions, companies can better manage these uncertainties. This approach offers significant strategic sourcing benefits, such as real-time visibility into costs, dynamic rate management, and automated processes, which are crucial for maintaining a stable procurement logistics strategy. Leveraging smart tech in the logistics sourcing process not only optimizes sourcing logistics services but also ensures that businesses can adapt to market changes without compromising on efficiency or cost-effectiveness. Let's dive into some critical business and tech strategies to mitigate risks in supply chain sourcing.
1. Don’t put all eggs (Carriers) in one basket - Carrier diversification
Diversifying carrier partnerships in logistics sourcing is a smart move that cuts down freight volatility risk while keeping rates competitive. By spreading your shipping needs across multiple carriers, you avoid putting all your eggs in one basket—a key aspect of strategic procurement and a proven strategic sourcing method. This approach not only safeguards against sudden price spikes or service disruptions but also leverages competitive dynamics among carriers, leading to better deals. Integrating this into your logistics sourcing strategy strengthens your supply chain sourcing, providing strategic sourcing benefits like cost stability and enhanced service reliability. Ultimately, it’s a robust logistics sourcing solution that fortifies your procurement logistics strategy against unpredictable market shifts.
2. Long-term contracts save your business any day
Locking in long-term contracts with carriers is a powerful strategy in logistics sourcing that shields businesses from the unpredictable swings of freight rate volatility. By securing stable, agreed-upon rates, companies can avoid unexpected cost surges that could disrupt their procurement logistics strategy. This approach offers significant strategic sourcing benefits, providing cost predictability and enhancing overall efficiency in the logistics sourcing process. With consistent pricing, businesses can better plan and budget, leading to smoother supply chain sourcing and more reliable sourcing logistics services. Ultimately, these long-term contracts serve as a strategic sourcing method that fortifies your logistics sourcing strategy, ensuring sustained cost-efficiency and operational stability.
3. Freight rate indexing — All-time companion in logistics sourcing
Freight rate indexing is an innovative approach in logistics sourcing that allows businesses to hedge against the volatility of freight rates by tying their shipping costs to a market-based index. Instead of locking in fixed rates, which may not always align with market conditions, companies can use this strategic sourcing method to benefit from the natural ebb and flow of market prices. This approach provides strategic sourcing benefits by ensuring that costs remain competitive while reducing the risk of sudden, unpredictable rate hikes. As part of a broader logistics sourcing strategy, freight rate indexing enhances supply chain sourcing by offering a flexible and adaptive pricing model, aligning closely with strategic procurement goals. It’s a dynamic logistics sourcing solution that strengthens the procurement logistics strategy, offering businesses a smart way to manage costs effectively in a fluctuating market.
4. Invest in digital freight platforms
Digital freight platforms are transforming logistics sourcing by offering unparalleled transparency, flexibility, and access to a vast network of carriers. These platforms allow businesses to instantly compare rates, track shipments, and make real-time decisions, providing strategic sourcing benefits that traditional methods can’t match. By offering a wide selection of carriers, digital platforms help companies diversify their logistics sourcing strategy, reducing dependency on any single provider. This flexibility is crucial for shielding against freight rate volatility, as businesses can quickly adapt to market changes and select the most cost-effective options. Incorporating digital freight platforms into the logistics sourcing process enhances strategic procurement, offering dynamic logistics sourcing solutions that align with supply chain sourcing objectives while maintaining cost efficiency and operational resilience.
5. Freight spend management
To manage your freight spends better, you must have a solution that provides cutting-edge analytics about the spend. A system with features like OCR-based invoice ingestion, carrier invoices, anomaly detection, and automated recommendations for dispute resolution along with predictive and prescriptive analytics can help you effectively manage freight spend.
Mitigate freight rate volatility with Pando
Smart technology is essential for managing freight rate volatility in logistics sourcing because it provides the real-time visibility, automation, and data-driven insights needed to navigate the complexities of fluctuating rates.
In a world where shipping costs can change rapidly due to various external factors, companies need advanced logistics sourcing solutions that can adapt quickly and optimize their procurement logistics strategy. Numerous supply chain tech solutions help enterprises manage their capacity, optimize their freight pricing, audit their freight payments, and reconcile contracts. Either they give it as separate offerings or take more time to bring the value to business. If there's one supply chain management solution that serves as an integrated offering with seamless integration, less time to value, and better customer support, it's Pando.
By enabling the seamless integration of various tech solutions and carriers, Pando not only helps businesses control costs but also ensures that their logistics sourcing process is efficient, error-free, and aligned with strategic procurement goals.
Pando's freight procurement solution effectively addresses logistics sourcing challenges by offering real-time freight rate management and automated processes that eliminate manual inefficiencies. Businesses can optimize their transportation costs by standardizing rates, improving visibility, and ensuring compliance with evolving regulations. Pando’s platform also empowers users with advanced analytics and rate benchmarking, helping them make informed decisions, secure competitive rates, and reduce overspending. By fostering better collaboration with carriers and streamlining the procure-to-pay process, Pando enables companies to navigate market fluctuations seamlessly while maintaining cost control and operational agility.
Is your enterprise in need of a logistics sourcing solution to counter the freight rate volatility? Schedule a demo with Pando's experts.
