Global Transportation Pricing Vs OTM Advanced Pricing ... … · Fuel surcharge . Direct/...

© Mahindra Satyam 2012

Global Transportation Pricing Vs

OTM Advanced Pricing Configurations

Ashok Revuri Ashok Mishra Mahindra Satyam

© Mahindra Satyam 2012 2

Agenda Significance of Pricing in Transportation

Pricing Strategies

Pricing Complexity in Logistics Environments

Market Impact on Pricing

Freight consolidation and Pricing – An example

OTM Pricing configuration CEP (Courier/Express/Parcel) 3PL (Trucking) Freight Forwarding – Ocean freight

Pricing Scenarios Weekend Delivery charges Day/activity based pricing Benchmark rates Depot charges

Key OTM implementation elements of Pricing configurations

Q&A


Significance of Pricing in Transportation Transportation charges contribute significantly to cost of product. Normally transport cost is about 30-40% of total logistics cost.

Margins Lower costs

Shipper Providers

Transportation Costs: Economic Drivers influencing transportation costs Distance, Weight, Density, Stow-ability, Handling, Liability, and Market in combination with modes Tug of war : Carriers need to make margins and shippers need to reduce the Transportation costs. In this practice, rating becomes challenging Service providers need to come up with innovative pricing structures to sustain in the Transportation market


Pricing Strategies

Cost-of-service strategy : Carrier estimates cost of providing service then adds on a percent profit margin. Commonly used for pricing transport of low value goods or in highly competitive situations Value-of-service strategy: price is based on value as perceived by the shipper rather than the carrier. Commonly used when services are sold in niche markets Combination pricing strategy: price is set at a value between cost-of-service minimum and value-of-service maximum. Most common pricing strategy Net-rate pricing strategy : is a simplified pricing format, Established discounts and accessorial charges are rolled into one all-inclusive price tailored for individual customer needs


3PL CARRIERS FREIGHT FORWARDER

Pricing Complexity in Logistics Environments

Every transportation player has different language of pricing

Rating m

echanics

Pricing Strategies

LTL

Freight Per KM

Freight Per Item

Freight Ton

Weight Range

Percentage of Value of Goods

Freight Product Type

Volume

FTL

Freight Per KM

Hitch Freight (Delivery

Location)

Plain FTL

FTL with Multiple Stop

Over

Dedicated /Shared Fleet

Freight Forwarding

Ocean Freight Charges

Redelivery and Return

Air Freight Commission/Inc

entive

Freight Per city group

Air Freight Chartering

Ocean Freight Surcharges

Origin Accessorial

Charges Origin Customs

Clearance charges

Prevailing surcharges

Destination charges

Destination Customs

Clearance charges

Origin Trucking Charges,

packing charges Destination

Haulage / trucking,etc

Detention/ Demurrage

LCL & Break Bulk

Cargoes stored on Deck &

Under the Deck

Container type

Air Freight Per Kg

CEP

Freight Charges

Product Wise

Flat/Slab/Increm ental

Weight/Value/Pa ckage/KM/AWB

Based on Service Delivery

Basic Charges

Special Service Charges

Minimum Charges

Additional Charges

Agreed Upon Charges

Outside Delivery Charges Base Rate

Accessorial Charges

Fuel surcharge

Direct/ Interline

Rules Tariff


Market Impact on Pricing

• Ocean Freight rates declined since 2006 , Carriers suffered losses and are pushing rate increases.

• Air Freight Rates overall stable- however include significant fuel increases • Forwarders profitability is overall under pressure- new sources of margins to be

elaborated • Due to lower margins & price pressure, Rate structures are becoming Complex

Note: Yield is defined as profit per unit Source: HARPEX, IATA, Line haul, Annual reports, Roland Berger


Freight consolidation and Pricing – An example

Adidas 2000 lbs @ $ 1 per lb Total- $2000

Nike 1500 lbs @ $ 1.25 per lb Total- $1875

Puma 1000 lbs @ $ 1.50 per lb Total- $1500

SQ-Singapore Airlines to FF SHA-LAX (ULD rate)

FF to Individual Customers (SHA- LAX per pound rate)

Total Cost (for FF) - $ 5000 Total revenue(for FF) $ 5375 ---------- Consolidation Profit $ 375


OTM Pricing Configuration Notes: 1. OTM has very flexible design for defining rates. Therefore, pricing solutions to a given requirement can be achieved in many ways within OTM. 2.All the pricing information mentioned in following slides does not reflect any company’s contractual information


- Flat Rate up to certain limit - Over and above per pack / kg / Km rate / ship unit

Example Basic charge of $10.00 for up to 5 kg A shipment of 8 kg would price as $10.60 which includes $10 for the first 5 kg, and then 3*20 cents for remaining 3kg

Weight Range Configuration in OTM

CEP(Courier/Express/Parcel) - Pricing

Configuration Elements: -Multi cost rule- ADD -Conditional Parameters- shpt weight -Rate basis – Shpt total weight -Marginal costing

Slabs 6-10kg 11-9999kg Rate 0.20/kg 0.1/kg



Rates per

– Carton – Equipment – UOM – Combinati

ons

Example Price per Carton is $ 5 Total price of 5 cartons is $25 Or Price for a specific equipment and distance travelled – USD 2.5 / mile

Rate Basis :

Units Configuration in OTM

Rate cost

Combination

Configuration Elements: -Conditional Parameters: Ship unit specification & Equip group -Rate basis: Per ship unit -Combination of Equipment & Shipment distance travelled


Flat rates per

consignment or Per UOM range

weight , Miles etc. Example Shipment is charged a flat rate of $250 for maximum distance travelled of 100 miles, $350 for up to 200 miles etc.

UOM Range Configuration in OTM

Configuration Elements Rate Unit Break Profile: UOM type Charge Amount: Flat rate (as required) Charge Break comparator: per Shipment


up to 100 mile

up to 200 miles

Rate 250 350


Basic charge setup as a % discount off the tariff. The % value could be same or different for each tariff component.

Example : Base Cost : USD 37.66 Flat Rate: USD1.15 / Kg (Min of USD 54.75) 50% discount on Base and Tariff that is 92.41* 50%= 46.20 + Service charges + FSC

Percentage off Tariff


Configuration Elements: -Master & Base Rates -Accessorial – Fuel charge, Extra service -Charge Sequence


Overnight consignment with a Surcharge for Time Sensitive Freight Example : Base Cost : USD 44.96 Flat Rate: USD 6.90 / Kg Time sensitive freight charge: USD 45/shipment Fuel charge : 15% of total Freight

Over Night/ Time-sensitive Parcel rates


Configuration Elements: -Rate basis – per shipment -Accessorial- Time sensitive/ FSC -Special Services (covering accessorial)


• European overland transportation is highly fragmented with less than 10% of total volume controlled by top five players

• Price is the main competitive lever

• Majority services are – Groupage, Part Loads and Full Truck loads

• Groupage : known as consolidation, this service combines several compatible consignments into a full load -> weight based pricing (100 kg pricing, weight breaks) -> Longest transit times -> Dim factor (1 cbm – 333 kg) • Partload : another type of consolidation -> Volume based pricing (load meter & weight ranges) -> Longer transit times (than FTL) -> Dim factor (1 cbm – 333 kg) • FTL : Full Truck load movement across Europe -> Equipment based rates (1.5T, 3.5T and 24T) -> shortest transit times

European Trucking- Groupage, Part Loads & FTL Pricing

3PL - Pricing


European Trucking- Groupage, Part Loads & FTL Pricing

Configuration Elements: -Rate basis : Shipment total weight / Load meter - Conditional Parameter for Dims - Separate weight breaks for LM & Weights - Rate service- LOOKUP with transit times

Weight Breaks

Equipment


CN SHA DE BRV

BE ANR

DE HAM

FI HEL

Hanjin

CMA- CGM

MSC

Hanjin

CMA- CGM

MSC

• The world is divided into trades, i.e. Asia - North America, Asia - Latin America, Asia –

Europe

For the big trades, ocean rates are calculated with the following logic: • A base rate (from fictive Base Port to fictive Base Port, e.g. Asian Base to European Base) • Origin Arbitrary (charge added for specific origin port) • Destination Arbitrary (charge added for specific destination port) • Adding those three elements together results in the total cost for per container type

(20’, 40’, 40’ HC etc.) from a specific origin to a specific destination.

General Rate Structure

Freight Forwarding – Ocean Freight Pricing


Base Rate quoted for various geographies

Ocean Freight rate – OTM Configuration (Example)

OTM RESULTS

Configuration Elements

Cost Category ID


Arbitrary Charges Based on Big geographies ( Accessorial Used for setup) • Country Arbitrary Charges Based on small geographies • State Arbitrary Charges Based on Lanes • Lane

Ocean Freight rate – OTM Configuration (Example)

• If THC (Terminal handling Charges ) and other standard charges are common based on bigger geographies

• Define RO / RR at country level

• Define Accessorial at RO level which will apply for the country geography

• If THC (Terminal handling Charges ) and other standard charges are common based on smaller geographies

• Define Multiple RO at small geography level, Define RR based on specific RO

• Define Accessorial at RO level which will always apply for that geography

• If THC (Terminal handling Charges ) and other standard charges are common to lanes

• Define one RO and multiple Rate Records

• Associate Accessorial at RR level which will apply only for specific


• Door To Door ( Example :- Inbound US East Coast) • Door To Port ( Example :- Inbound US East Coast)

Consolidated Ocean Freight rate - with Visibility to Cost Break-up


Pricing Scenarios…

Extra charges if delivery is on weekend Applicable for 3PL or CEP

• Create an agent on shipment creation – which will lookout shipment start and end dates.

• Oracle function will determine day of the date • Based on day of the week, update Order release of shipment with

special service say “Weekend Delivery” • Use action to recalculate shipment cost – OTM will add extra charges

on shipment • *** RO or RR should have special service / cost assigned

• RR with two cost lines • First line with normal Freight charges • Second cost line with Calendar associated for weekends only ( Sat /

Sun ), assign appropriate cost..

Weekend Delivery

• Configuration in OTM


Weekday Based rates Applicable for CEP or 3PL

If a shipment is picked up on Monday, Ratecost1 applies. Tuesday is Rate cost2 etc. Solution : Attach calendar in rate basis and ensure pickup dates are added on order release if calendar activity is LOAD **** OR should have Pickup dates if activity is ‘Pickup”

Weekday Based rates

• Configuration in OTM



Benchmark Rates E.g. I have a TL shipment from Atlanta, GA to Harrisburg. What is the Benchmark rate(running rate) in this lane? What is the MIN to consider for spot quote?

• For each lane, customers want to load benchmark rate and they want to do RIQ and want to see the shipment cost (in parallel with) bench mark rate on each shipment. Ideally, they want to see when they do a spot quote i.e. change service provider or edit service provider and cost

• The bench mark rate should never get selected in planning. Also users should not use them in change service provider.

Solutions :

1. Create bench mark rates with high rate quality factor (a very high flat cost). This will work in RIQ and will never get selected in Bulk plan (if required we can add in itineraries as service provider not compatible)

2. Load them as Sell rates(for those who don't use sell)

3. Load rates with Reference qualifier bench mark rate and value = Y. If user wants to know a bench mark rate, just add the Refnum on shipment (manually) and do a change service provider ( RIQ will not work)

Benchmark Rates

Configuration in OTM



Depot to Pickup or destination Location

Solution : • In order for shipments to and from depots to be properly charged, cost

information must be defined for the rate records associated with the rate offering that you marked as Depot Applicable.

• To do this, you must specify a rate cost amount and a rate basis for shipments to and from depots. In the Rate Cost, define an Amount, which will be the actual cost per unit for the basis option. In the Basis drop-down box, select the Depot related options so that the amount you just defined is properly charged. There are two Depot related Basis Options:

• SHIPMENT.DSTDEPOT_DISTANCE: this is for charges from the last stop on a shipment to the Depot

• SHIPMENT.SRCDEPOT_DISTANCE: this is for charges from the Depot to the first stop on a shipment

• After selecting the basis, you will specify the Units that the cost is based on. Since the Depot Basis options are based on distance, you may enter something such as 1 mile. This charges the dollar amount in the Amount field per one mile traveled between the Source Depot and the first stop.

Note: You must have a line for the normal freight calculation in addition to the one for the depot-source or-destination mileage. So, you will have two cost lines.

Depot Charges Configuration in OTM

Pricing Scenarios


• Rate Definition

• E.g. Association of Rate Services, Assessorial to RO Vs RR

• Impact of Rush Hour

• Rate Quality /Preferences

• External Rate Engines

Key OTM implementation elements that influence Pricing


Parcel- Kewill glog.RatingEngine.Kewill.URL= glog.RatingEngine.Kewill.Port= glog.RatingEngine.Kewill.RefnumQual= LTL-SMC3 glog.RatingEngine.Rateware.URL= glog.RatingEngine.Rateware.Port= glog.RatingEngine.Rateware.NewAPI =true

External Rate Engines

External Rate Engines


Q & A

Please contact us: [email protected] [email protected]

Note: Rajasekhar Chennapragada had presented the paper due unforeseen urgencies by authors

mailto:[email protected]

27


mahindrasatyam.com

Safe Harbor

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Mahindra Satyam undertakes no duty to update any forward-looking statements.

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Global Transportation Pricing Vs OTM Advanced Pricing ... … · Fuel surcharge . Direct/...

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