The importance of choosing competitive rates in transportation

Hugo Álvarez - COO & Co-founder
August 24, 2021

The importance of choosing competitive rates in transportation

Probably more than one time you heard the phrase: "Freight transportation is what moves Mexico." That is absolutely true

The motor transport of goods is the most used mode of transport in Mexico; 83.2% of the domestic tonnage moves through it, generates 2.73% of employment nationwide, and contributes 3.96% of the Gross Domestic Product (GDP).

In such a scenario, trucking rates play an important role in providing continuity to the supply chain.

The rates are not regulated by the State, so it is left to the carriers to set and freely negotiate the costs of the service. That generates big competition among permit holders.

Given this, identifying an appropriate way to measure the increase in the cost of the inputs used by carriers to produce the service is key to negotiating rates with users and maintaining the financial viability of companies.

How is the fee calculated?

Most carriers use the classic formula where the fixed costs, the variable costs, and the distance to travel for the trip.

Fixed costs include elements such as salaries and salaries of the direction and management, insurance, taxes, and duties, and include the expense of the domestic services they use.

Variable costs include factors such as fuel, maintenance, tires, road expenses, operator, among others.

However, the fixed cost increases or decreases depending on the distance traveled and the number of trips made, although the level of organization of logistics activities also weighs.

At the same time, the fixed cost of each trip changes according to the operational conditions of the transport services.

This is caused by different uncontrollable variables such as poor road conditions, inefficient operations that cause route detours, and variable or disproportionate loading and unloading times.

TrackChain, the best ally

In such a scenario, carriers must keep absolute control of the finances of the company under 4 basic points: investments, financing, operating expenses, and sales.

However, few carriers and shippers use a digital tool that allows them to optimize their operating costs in the best possible way.

TrackChain is an intelligent digital cargo marketplace, a fully integrated and easy-to-use intuitive system for freight quotation, which reduces the need for intermediaries that do not add value.

The density of coverage and the available capacity of the platform allow generating advanced functions such as rate predictions, which help users to manage their shipments more effectively.

The TrackChain platform uses machine learning to estimate the freight rate for dedicated contracts and the spot market based on historical costs, third-party sources, lanes, risk, market conditions, and seasonality.

In this way, you will recommend appropriate rates to shippers when you receive quotes from carriers and use them as a basis for comparison.

Track Forwards, reinventing contractual freight

The goal of contract freight (RFP) is to find the best carriers at the best value to create a reliable supply chain and predictable by blocking rates for future shipments in some lanes.

However, in TrackChain we are creating Track Forwards, a new type of standardized, executable, and negotiable transportation contract for future transportation capacity at a fixed price.

In that contract, a sender enters the platform and generates a one-year Track Forwards contract to move four loads per day in a specific lane and select through a list of available carriers to whom to send the request.

When this contract is accepted by the carrier, it is a commitment binding, I mean, if the shipper offers only 2 loads on any given day, they still owe the carrier the other 2 loads.

If the carrier does not accept a load, it is responsible for paying the difference between the rate of its contract and the rate at which the sender moves the load with another carrier via the spot market.

In that sense, the committed volume will behave more like dedicated fleet contracts than a traditional RFP award, allowing both the carrier and the shipper to reduce or eliminate costs.

TrackChain's main competitive advantage is that it uses data and technology to develop a forward-looking view of transport capacity and rates. Request your demo today and manage your shipments and payments, all in one place.

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