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The price charged by a given haulier for a specific load depends on
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How much they were paid for the previous load
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How much they expect to be paid for the next load
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Currency rates, toll costs and ferry prices
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The load & detour distances and the haulier’s interpretation of their own fuel, wage and truck costs
Regular price discovery is important
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Each of the above changes for every new load, the first two even when the route is the same
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Prices and flows on many routes (especially cross-channel ones) are seasonal
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Transport costs can fall as well as rise, especially given the significant impact of fuel prices
How many hauliers should be contacted to price a load?
For any particular load there will be a large number (normally at least 100) reliable hauliers who might offer
transport regularly on that route. For instance, in March 2011 we used 85 different hauliers
to transport goods on routes from Belgium to the Midlands and 42 different hauliers on routes from
the North of England into Spain.
Effective logistics companies and brokers will know a large number of appropriate hauliers for each of
their specialist routes. The challenge is to balance the price benefit of contacting more hauliers,
the cost of making those contacts and the continuity benefits of using someone who has done the same transport before. We have
found that for any specific spot load, haulier prices follow a roughly Gaussian distribution with a
significant spread of prices (see right), reflecting the level of variation in the factors above.
Asking a price from just one of the "appropriate" hauliers at random will result in an expected price that
is equal to the mean of the distribution; €960 in this example. Asking a price from two hauliers chosen at
random and then picking the lower of the two gives us a better expected price of €925. Asking a price from all 45
hauliers in this example gives an expected price equal to the lowest price in the sample (€807) but if the
cost of phoning and negotiating with each haulier is €5 then adding this cost to the price gives €807 + 45 x €5 = €1032,
significantly higher than the expected price of calling just one haulier at random!
Finding an appropriate set of hauliers and then deciding how many to contact for a load depends on the particular service requirements
of the customer (strict timings and/or vehicle specifications will limit the pool of appropriate hauliers),
Hauliers
Contacted |
Expected
Price |
Contact
Cost |
Total
Price |
| 1 | €960 | €3 | €964 |
| 2 | €925 | €6 | €931 |
| 3 | €907 | €9 | €916 |
| 4 | €897 | €12 | €909 |
| 5 | €889 | €15 | €904 |
| 10 | €863 | €30 | €893 |
| 15 | €849 | €45 | €894 |
| 20 | €840 | €60 | €900 |
| 30 | €825 | €90 | €915 |
| 45 | €807 | €135 | €942 |
the price variability for that particular route (more variability or more expensive routes make it beneficial to contact more hauliers)
and the administration cost of negotiating with each haulier. At Freightex we store route and price data
for each of our customers in a single standardised database schema, this allows us to query historic data across all
of our customer contracts simultaneously and select the largest number of appropriate hauliers for any specific route and service
type. We also endeavour to minimise the cost of contacting and negotiating with hauliers by rewarding hauliers
that interact with us online rather than by phone with better prices. Whilst we are used by almost all of Europe's major logistics companies
to manage a proportion of their lower margin FTL cross-channel freight, some large organisations with their own
dedicated freight broking teams lease online systems from us to optimise the cost and efficiency of this negotiation process with their
approved hauliers. For larger customers moving substantial volumes of freight on non cross-channel routes, this is the approach
that we would recommend.
Regular work vs spot work
Where loads follow a fixed regular schedule over a long period of time or where there is a lot of flexibility in collection
and delivery bookings, hauliers are able to plan other loads around that schedule and optimise their truck utilisation.
For this sort of tender work we can negotiate better prices with hauliers and offer lower rates than for spot or ad-hoc work.
This is different to a scenario where there is a large volume of loads but where there are uncertain weekly collection and delivery times
or where there is little advance notice of when loads need to move. In this case freight rates are similar to those for spot work.
For regular long-term work, many customers want to fix a price to help them with their financial planning processes. This can
prove problematic for hauliers whose costs are dependent on constantly varying fuel prices. Moreover, cross-channel freight
costs tend to follow Euro-denominated haulier rates
whilst UK-based customers want to be invoiced in GB Pounds - this leaves hauliers with currency exposure that they would rather
not have. Most logistics companies now use pre-defined fuel
and currency adjustment tables so that they don't have to add a risk premium to prices. We can offer long-term price agreements
without a fuel or currency adjustment but do have to add a significant premium to the rates we charge to cover our cost of hedging.
Our standard tender price quotes come with a reference fuel price (and currency rate if quoting in GBP) so that customers can
use our tables to see the impact of these variables in advance.
Invoicing and documentation requirements
The length of the payment cycle from delivery to customer payment dictates the amount of capital that logistics companies
have to allocate to a particular customer contract. That capital cost will be reflected in the price that a particular
customer is charged. Where customers insist on the presentation of delivery documents together with their invoices, there are
additional costs per load associated with the timely collection of those documents from drivers roaming around Europe. We are
able to offer better prices to customers who offer shorter payment terms and who don't require delivery documents at the time of invoicing.
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