Losing Hard Won Gains

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Dynamic Pricing Technology in Container Shipping

By Lars Fischer, Managing Director, Softship Data Processing

For all the right reasons, there has been a sustained focus across the liner shipping industry in recent years on optimising efficiencies across the board. This has been achieved primarily by streamlining vessel operations and utilising a wide range of new technologies to lower fuel consumption, reduce turn-around times in port and cut operating expenses at sea and on shore. Yet, unlike other global industries, such as retail or travel, although the capability is there, container lines have not been utilising simple digital solutions to maximise profitability through real-time pricing on shipments. As a consequence, many of the efficiency gains and the money saved is lost at the point of sale, when profitability margins are squeezed.

Lars Fischer, Managing Director, Softship Data Processing Singapore

This is because, for most shipping lines, calculations for enquires from customers have to be developed on a case-by-case basis, with Trade, Sales and Agency Managers within shipping lines drawing from a disparate set of Excel spreadsheets, spot quotes and open tariffs alongside contractual agreements in order to prepare an offer. This largely manual process is exceptionally time consuming and resource intensive. It greatly reduces routeing options to only the most obvious or immediately available routes, and does not account for real-time variability, for example, should there be disruption at certain ports or fluctuating carrier capacity. It is highly vulnerable to mistakes and it can take days for shipping lines to revert to the client with quotes.

Using dynamic pricing to boost profitability

Given the overall trend towards digitalisation in shipping, this is a way of working that is outdated and no longer fit-for-purpose. Considering the complexities involved in managing multi-modal cargo transportation and the myriad possibilities available for moving cargo worldwide, ‘dynamic pricing’ tools could transform how bookings are managed in the liner sector in particular. Utilising big-data and increasingly sophisticated algorithms, the vast majority of service providers in other sectors have been using a dynamic pricing sales method – where prices can be flexibly adjusted to any market situation in real-time – for years. It works so well because the service providers have greater control over revenue generated by products and services and can optimise profit margins by adjusting prices based on actual demand.

From Softship’s perspective, as a leading provider of software solutions for the liner and agency segments, applying dynamic pricing to container shipping is an obvious move forward. By using dynamic pricing tools developed specifically for the liner segment, carriers could use analytics to better target niche markets (particular trade routes, timings, multimodal options, etc) in which they can make the most profit relative to their competitors. They can then calculate and offer prices to customers at the rates customers are willing to pay, while ensuring a secured level of profitability from the service provision. Shippers, at the same time, benefit from access to a wider range of choices from the container line (or container lines) and greater transparency over where and when to ship in order to optimise their own profitability.

This is why Softship earlier this year launched a dynamic Pricing Calculator to the liner segment. The web-based tool allows supply chain managers and operators to identify and select optimum end-to-end (port-to-port or door-to-door) multi-modal solutions for their customers and provide full breakdowns of transit times at the point of enquiry. After keying-in a few simple inputs (origin, destination, preferred timing and cargo information) the solution compares all possible options automatically from the company’s pre-defined transport network – and can include all transport modes including truck, road and rail, before presenting all possible options including transit times, costs and contributions.

Utilising real-time cost control

For carriers of all sizes, this means they can provide instant and highly accurate quotations which factor in all possible routing options, costs, timings and revenue contributions automatically. With this enhanced visibility over the revenue contribution of a route, the Managing Agent or Salesperson can instantly see if a particular route will make a revenue significant contribution.  Importantly, the technology works by integrating into the carriers existing IT environment, using their existing tariffs, contracts and associated cost calculations to provide complete visibility in a single screen showing all possible routeing options, costs, revenue contributions and transit times and linking with all other back-office requirements.

This is possible because the Pricing Calculator tool is a web-based application which is integrated with the company’s other internal systems, bespoke or otherwise. This is done through Application Programming Interface (API) technology, which allows defined and controlled data exchange between two systems. Importantly, as there is a defined interface for the Pricing Calculator and an established way of sending information between the two systems, carriers adopting the tool do not need to customise the system.

The tool can integrate with any existing software, including Softship’s LIMA software solution, for example, which handles the administration of all operational, financial and commercial core processes of any liner carrier, also in real-time. Through LIMA, users have complete visibility and management of tariffs, contracts, quotations, contribution margins, booking and documentation through the commercial module to stock and inventory control and complete voyage planning and port call requirements – add dynamic pricing calculations in and they benefit from complete end-to-end control.  By facilitating the seamless flow of data and information across the organisation, from point of enquiry to point of delivery, carriers can benefit greater transparency and control. Duplication is eliminated, administration time is reduced, and costs are contained, allowing for all hard-won efficiency gains to be captured.

(This article has been contributed by Lars Fischer exclusively for Sea News)

Sea News Feature, December 23

Baibhav Mishra
Author: Baibhav Mishra

Associate Editor, Sea News