Global Transportation Pricing Vs OTM Advanced...
Transcript of Global Transportation Pricing Vs OTM Advanced...
© Mahindra Satyam 2012
Global Transportation Pricing Vs
OTM Advanced Pricing Configurations
Ashok Revuri Ashok Mishra Mahindra Satyam
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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
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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
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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
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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
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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
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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
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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
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- 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
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CEP(Courier/Express/Parcel) - Pricing
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
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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
CEP(Courier/Express/Parcel) - Pricing
up to 100 mile
up to 200 miles
Rate 250 350
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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
CEP(Courier/Express/Parcel) - Pricing
Configuration Elements: -Master & Base Rates -Accessorial – Fuel charge, Extra service -Charge Sequence
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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
CEP(Courier/Express/Parcel) - Pricing
Configuration Elements: -Rate basis – per shipment -Accessorial- Time sensitive/ FSC -Special Services (covering accessorial)
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• 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
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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
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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
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Base Rate quoted for various geographies
Ocean Freight rate – OTM Configuration (Example)
OTM RESULTS
Configuration Elements
Cost Category ID
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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
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• 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
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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
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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
Pricing Scenarios…
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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
Pricing Scenarios…
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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
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• 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
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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
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Q & A
Please contact us: [email protected] [email protected]
Note: Rajasekhar Chennapragada had presented the paper due unforeseen urgencies by authors
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