Global Transportation Pricing

Vs
OTM Advanced Pricing Configurations

Ashok Revuri
Ashok Mishra
Mahindra Satyam
© Mahindra Satyam 2012
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

© Mahindra Satyam 2012 2

Significance of Pricing in Transportation
Transportation charges contribute significantly to cost of product.

Normally transport cost is about 30-40% of total logistics cost.

Providers Shipper

Margins Lower costs

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
© Mahindra Satyam 2012 3
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

© Mahindra Satyam 2012 4

Pricing Complexity in Logistics Environments

Every transportation player has different language of pricing

3PL CARRIERS FREIGHT FORWARDER

CEP LTL FTL Freight Forwarding

Freight Charges Freight Ton Air Freight Per Origin Trucking

Plain FTL Charges,
Kg
packing charges
Product Wise Weight Range
FTL with Air Freight Destination
Multiple Stop Commission/Inc Haulage /
Flat/Slab/Increm Over entive trucking,etc
Freight Per KM
Rating mechanics

Pricing Strategies
ental
Air Freight Detention/
Weight/Value/Pa Freight Per KM
Freight Per Item Chartering Demurrage
ckage/KM/AWB
Based on Hitch Freight
Percentage of (Delivery
Ocean Freight LCL & Break
Service Delivery Value of Goods Charges Bulk
Location)
Basic Charges Dedicated Ocean Freight
Cargoes stored
Freight Product
on Deck &
Type /Shared Fleet Surcharges Under the Deck
Special Service
Charges Freight Per city Origin
Volume Container type
group Accessorial
Outside Delivery
Charges
Charges
Base Rate Origin Customs Destination
Redelivery and
Minimum Clearance Customs
Return
Charges Accessorial charges Clearance
Agreed Upon Charges charges
Charges Prevailing
Fuel surcharge surcharges
Additional
Charges Destination
Direct/ Interline
charges
Rules Tariff

© Mahindra Satyam 2012 5

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
© Mahindra Satyam 2012 6
Freight consolidation and Pricing – An example

SQ-Singapore Airlines to FF
SHA-LAX (ULD rate)

FF to Individual Customers
(SHA- LAX per pound rate)

Adidas Nike Puma

2000 1500 1000
lbs @ lbs @ lbs @
Total Cost (for FF) - $ 5000 $ 1 per $ 1.25 $ 1.50
Total revenue(for FF) $ 5375 lb per lb per lb
---------- Total- Total- Total-
$2000 $1875 $1500
Consolidation Profit $ 375
© Mahindra Satyam 2012 7
 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

© Mahindra Satyam 2012

CEP(Courier/Express/Parcel) - Pricing
Weight Range Configuration in OTM
- Flat Rate up to
certain limit

- Over and
above per pack /
kg / Km rate /
ship unit Configuration Elements:
-Multi cost rule- ADD
-Conditional Parameters-
Example shpt weight
Basic charge of $10.00 for -Rate basis – Shpt total
up to 5 kg weight
-Marginal costing

Slabs 6-10kg 11-9999kg

Rate 0.20/kg 0.1/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

© Mahindra Satyam 2012 9

CEP(Courier/Express/Parcel) - Pricing
Units Configuration in OTM
Rates per Rate Basis :

– Carton
– Equipment
– UOM
– Combinati
ons Configuration Elements:
-Conditional Parameters: Ship
unit specification & Equip
group
Example -Rate basis: Per ship unit
Price per Carton is $ 5 Rate cost -Combination of Equipment &
Total price of 5
Shipment distance travelled
cartons is $25

Or

Price for a specific

equipment and
distance travelled –
Combination
USD 2.5 / mile

© Mahindra Satyam 2012 10

CEP(Courier/Express/Parcel) - Pricing
UOM Range Configuration in OTM
Flat rates per

consignment
or
Per UOM
range Configuration Elements
Rate Unit Break Profile: UOM type
weight , Miles Charge Amount: Flat rate (as required)
Charge Break comparator: per
etc. Shipment

Example
Shipment is charged a
flat rate of $250 for
maximum distance
travelled of 100 miles,
$350 for up to 200
miles etc.
up to 100 up to 200
mile miles
Rate 250 350

© Mahindra Satyam 2012 11

CEP(Courier/Express/Parcel) - Pricing

Percentage off Tariff

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

Configuration Elements:
-Master & Base Rates
-Accessorial – Fuel charge,
Extra service
-Charge Sequence

© Mahindra Satyam 2012 12

CEP(Courier/Express/Parcel) - Pricing

Over Night/ Time-sensitive Parcel rates

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

Configuration Elements:
-Rate basis – per shipment
-Accessorial- Time
sensitive/ FSC
-Special Services (covering
accessorial)

© Mahindra Satyam 2012 13

3PL - Pricing

European Trucking- Groupage, Part Loads & FTL Pricing

• 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

© Mahindra Satyam 2012 14

 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
Weight Breaks - Rate service-
LOOKUP with transit
times

Equipment

© Mahindra Satyam 2012 15

Freight Forwarding – Ocean Freight Pricing

DE HAM

Hanjin Hanjin

CN SHA
CMA- CGM DE BRV
CMA- CGM FI HEL

MSC MSC

BE ANR

General Rate Structure

• 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.

© Mahindra Satyam 2012 16

Ocean Freight rate – OTM Configuration (Example)
Base Rate quoted for various geographies

OTM RESULTS

Configuration
Elements
Cost Category ID

© Mahindra Satyam 2012 17

Ocean Freight rate – OTM Configuration (Example)
Arbitrary Charges Based on Big geographies ( Accessorial Used for setup)
• If THC (Terminal handling Charges ) and other standard charges are common
• Country based on bigger geographies

• Define RO / RR at country level

• Define Accessorial at RO level which will apply for the country geography

Arbitrary Charges Based on small geographies

• If THC (Terminal handling Charges ) and other standard charges are common
• State 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
Arbitrary Charges Based on Lanes

• Lane • 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

© Mahindra Satyam 2012 18

Consolidated Ocean Freight rate - with Visibility to Cost Break-up

• Door To Door ( Example :- Inbound US East Coast)

• Door To Port ( Example :- Inbound US East Coast)

© Mahindra Satyam 2012 19

Pricing Scenarios…
Weekend • Configuration in OTM
Delivery
• Create an agent on shipment creation – which will lookout shipment
start and end dates.
Extra • Oracle function will determine day of the date
charges if • Based on day of the week, update Order release of shipment with
delivery is special service say “Weekend Delivery”
on weekend • 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
Applicable
for 3PL or
CEP
• Second cost line with Calendar associated for weekends only ( Sat /
Sun ), assign appropriate cost..

© Mahindra Satyam 2012 20

Pricing Scenarios…
Weekday • Configuration in OTM
Based rates

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”

© Mahindra Satyam 2012 21

Pricing Scenarios…
Benchmark Configuration in OTM
Rates
• 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
Benchmark mark rate on each shipment. Ideally, they want to see when they do a
Rates 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.
E.g. I have a
TL shipment
Solutions :
from Atlanta,
GA to
1. Create bench mark rates with high rate quality factor (a very high flat
Harrisburg.
cost). This will work in RIQ and will never get selected in Bulk plan (if
What is the
required we can add in itineraries as service provider not compatible)
Benchmark
rate(running
2. Load them as Sell rates(for those who don't use sell)
rate) in this
lane?
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
What is the
shipment (manually) and do a change service provider ( RIQ will not
MIN to
work)
consider for
spot quote?

© Mahindra Satyam 2012 22

Pricing Scenarios
Depot Charges Configuration in OTM
Solution :
• In order for shipments to and from depots to be properly charged, cost
Depot to information must be defined for the rate records associated with the
Pickup or rate offering that you marked as Depot Applicable.
destination • To do this, you must specify a rate cost amount and a rate basis for
Location 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.

© Mahindra Satyam 2012 23

Key OTM implementation elements that influence Pricing

• Rate Definition
• E.g. Association of Rate Services, Assessorial to RO Vs RR

• Impact of Rush Hour

• Rate Quality /Preferences

• External Rate Engines

© Mahindra Satyam 2012 24

External Rate Engines
External Rate Engines

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

© Mahindra Satyam 2012 25

 Q&A
Please contact us:
rajasekhar_chennapragada@mahindrasatyam.com
Oracle_OTM_Competency@mahindrasatyam.com

Note: Rajasekhar Chennapragada had presented the paper due unforeseen urgencies by authors

© Mahindra Satyam 2012 26

 Thank you

mahindrasatyam.com

Safe Harbor
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1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking
statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ
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© Mahindra Satyam 2012

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