Problems with Spot Freight Negotiation & how you can fix it

For a price-sensitive economy like India, cost and timely delivery are the most critical concerns of transportation. Over 35% of manufacturers and construction enterprises have limited certainty or predictability of routes and dispatch frequencies. For them, a long-term contract is not an option. Hence, the logistics team at such enterprises spends over 65% of their daily time negotiating freight charges with transporters and making freight negotiation reports for approvals and audit compliances. Despite all this effort, freight negotiation continues to be a grey area, and people are highly skeptical about it.

So far, there have been several e-negotiation software” for long-term freight contracts, such as SAP-Ariba, MJunction, and others. But for Spot freight negotiation, there has been limited success due to urgency, high price volatility, fragmented suppliers, lack of knowledge, and people on the move, among others.

Logistics managers over these years, hence had no option but to operate manually through telecalls, e-mails, or text messages, investing a lot of their time trying to negotiate for better rates. Manual operations have restrictions and limitations that often prevent enterprises & teams from having a cost-effective and efficient process cycle.

5 Key concerns of logistics spot market negotiation can be identified:

1. Limited reach out resulting in high freight rate:

The most challenging part of logistics workflow optimization is getting the correct quote for the right vehicle at the right time. The only way the best market rate might turn up is by getting quotes from multiple vendors (if not all). Manually, this whole process not only wastes time but also creates a human bottleneck. Reaching the nth number of transporters within a specific time to get the best quote is often cumbersome. Hence, logistics teams sometimes have to selectively call transporters based on their understanding of route competencies and expected availability, which leads to restricted reach out, impacting the rates.

2. Lack of transparency:

Lack of clarity and transparency in the freight negotiation process has been raising queries on the integrity and honesty of logistics personnel for ages. The manual process of taking quotes from vendors, comparing them, and allocating them to one vendor brings in much audit questioning and grilling. Despite the team’s sincere and honest effort in this 24*7 thankless job, the integrity question mark hits the employee morale profoundly and hard, affecting their performance and productivity.

3. 65% underutilization of human resources:

Much time in logistics is wasted on repetitive tasks like making & attending phone calls, data entry, e-mailing, searching for emails, report making, and internal paperwork. It directly impacts the person’s productivity and stretches the time required to complete an operation cycle. A reliable, easy-to-access, real-time platform is needed to make logistics a labor-intensive process impacting the company’s efficiency and productivity.

4. Hurdles in freight invoice approvals:

Over 17% of bill disputes in logistics are around freight rates due to discrepancies in communication, typo error, verbal confirmations, and missing PO. The entire billing process is delayed by such issues, which stretches the process cycle significantly.

5. The high total cost of logistics:

Total logistics cost becomes substantially high if all its fundamental components are counted. The multi-layered price includes:

• Freight cost
• Manpower cost in the finalization
• The time delay in movement and servicing clients
• Loss of business due to delay in service
• Loss of business due to the high cost of freight (unserved area or client)
• Accounting time required in reconciliation and bill clearing
• Management time in following reports and lack of structured data for decision making
• Lack of proper negotiation can directly affect the cost and service quality

In the commodities market (such as Metal, Construction material, FMCG, and others), manufacturers’ profitability is directly dependent on logistics competencies. Manual calls and hustling daily with price rate negotiation significantly impact the process cycle time, thereby widening the organization’s overall cost and time funnel. So optimizing the process of freight negotiation is a critical concern for manufacturers worldwide.

Freight e- Negotiation: Clicks to fix Functions like accounting, human resource management, etc., have realized that automation is the right click to fix their problems. So now it’s time for logistics teams to pick up their tools and start clicking to fix their problems.

Here’s how technology and automation can simplify and solve the problems of spot freight negotiation:

Freight e-negotiation accelerates and optimizes daily logistics through a common platform for vendors to bid and compete. Even though about 79% of the transportation industry is yet to adopt automation and technology, some industries where transportation is critical, like construction, consumer goods, animal feeds, chemicals, etc, have already experienced and embraced the magic of e-Negotiation on the spot market.

Freight e-negotiation: Real-time Impact and Improvement

1. Wider reach to suppliers and increased placement chances with better rates:

When vehicle requirement is posted in the system, the system automatically sends intimation by e-mail, SMS & mobile notification to all transporters registered with the company. Groups can be created to float inquiry lane-wise to selective transporters only. So, the primary communication to all transporter is reduced to a single click. Freight e-negotiation makes coordination and communication with multiple transporters up to 5-fold easier and faster.

2. Transparent and 100% audit compliance:

E-Negotiation ensures the equal right of participation for all transporters. Historical freight records and audit trails of all actions and quotes are maintained for future reference, and deviations can be logged as comments too. Typo errors, human communication errors, etc., are eliminated, and rate disputes are reduced as transporters directly do the data entry. This serves as a ready answer to all the audit queries & improves trust and respect between the people involved.

3. SuperPower employee productivity:

The Freight e-negotiation process reduces the manual multi-step pre & post-negotiation process to a mere 2-step decision-making process like what is required (the inquiry) and whom to allocate (single click). Actions like data entry, report creating, e-mail sending, and others are automated, saving up to 87% of the time previously consumed in these repetitive tasks. Manual e-mails and phone calls drop by 80%. The entire process becomes faster, and the TAT between order placement to order dispatch is reduced. According to Global Truck Study 2018 by PwC, 80% of the cost reduction in logistics due to automation is attributable to optimizing human resource utilization.

4. Single repository of all relevant data:

The e-negotiation platform records every bit of data, quotes, and confirmations in writing and stores it for future reference. This brings down the disputes and discrepancies relating to communication, proofs, typo error, missing PO, etc. All manual errors, confusions, conflicts, and refusals can be taken care of by using this stored data; hence, the bill process cycle can be reduced significantly.

At Superprocure, we empower logistics and supply chain teams with software solutions that save cost by digitizing and automating logistics workflow. You may reach us at [email protected].

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