BY JAMES COOKE, EDITOR AT LARGE
techwatch
developing a crystal ball for rates
IN THESE TURBULENT TIMES, IT’S BEEN HARD FOR DISTRIbution managers to guess where freight rates will be tomorrow—
never mind a month or year from now. I bet most managers would
give almost anything to have a crystal ball on their desk to help
them divine the future direction of transportation pricing.
As it happens, one supply chain software provider—
LeanLogistics Inc. of Holland, Mich.—is working on this right
now. To be precise, the company is developing and testing an
application for forecasting rates for truckload movements. The
new venture builds on LeanLogistics’ existing transportation-relat-ed services. In addition to providing an on-demand transportation
management system (TMS) and running an online cargo-match-ing and freight optimization network for shippers and carriers, the company manages transportation—procuring trucking services—for 12
shippers.
Electronic rating tools are nothing new to the
transportation market. TMS vendors have long
offered systems that allow shippers to compare
carrier rates and performance. For instance,
both Next Generation Logistics Inc. of
Inverness, Ill., and Distribution Solutions Inc. of
Plymouth, Mass., provide transportation management systems that include rate benchmarking capabilities.
But LeanLogistics’ forecasting initiative goes
well beyond benchmarking rates to identify the
lowest available price. According to Chris
Timmer, a senior vice president of sales and marketing at the company, the new model predicts truckload rates by lane a month
ahead.
LeanLogistics is not the first to attempt to forecast freight rates.
Others, including several economics firms, have taken a stab at it
in the past. But LeanLogistics says it has an advantage over its
predecessors in that it has a huge database of actual rates to draw
upon. The company says its on-demand TMS (which happens to
be named On-Demand TMS) currently processes millions of shipments per year, representing more than $5 billion in annual freight
spend.
To predict where rates are headed, LeanLogistics starts with a
real rate—say, $1.25 a mile for a truckload shipment from Chicago
to Boston. It then performs some calculations using a proprietary
algorithm that factors in truckload capacity and demand for that
particular shipping lane along with such
variables as equipment operating costs, fuel
prices, labor rates, and past shipping behav-
ior for the region and the specific market.
After crunching the numbers, the model
comes up with a 30-day rate forecast. To
date, Timmer says, the predicted rates have
been within 5 to 6 per-
cent of the actual rate.
