It may seem a misnomer to label a $35 billion-a-year industry a "niche market." Yet that's how companies that provide freight rating software services describe their business. It is a specialized, albeit mature, field populated by relatively few vendors. As freight users across all modes seek to maximize their shipping spend in an environment of tight carrier capacity and rate increases, rate comparison tools and the companies that develop them have become increasingly important.
The basic function of freight rating software is to match a user's shipping and freight characteristics with a carrier's price and service offerings, enabling shippers and third-party logistics service providers (3PLs) to conveniently shop around for the best rates from multiple carriers. Freight rating tools are designed to optimize the headhaul and backhaul components of a shipper's network, and deliver the analytics that shippers need during lane-by-lane rate negotiations with their carriers. "There is a bit of work involved on the shipper's part, but anyone trying to hold the line on freight expenses should certainly investigate its use," said James A. Cooke, principal analyst at Nucleus Research Inc., a research firm.
Most vendors specialize in a certain mode. For example, Kewill, a U.K. firm with U.S. headquarters in Chelmsford, Mass., is particularly visible in parcel. DAT Solutions, based in Portland, Ore., has a strong presence in the truckload space. Peachtree City, Ga.-based SMC3, which has developed a rating product called "RateWare," focuses on the less-than-truckload (LTL) market.
Madison, Wis.-based RateLinx touts its software, called "ShipLinx," as mode-agnostic, meaning it doesn't try to shoehorn a user into a particular mode. In the company's view, situations arise when the traditional weight "breaks" that often determine modal choice don't apply, and a shipper whose load might seem best suited to parcel shipment could actually fetch a better rate moving via LTL. ShipLinx will identify those anomalies and suggest ways a shipper can better leverage its shipping spend, said Shannon Vaillancourt, RateLinx's founder and president.
RateLinx sells its software exclusively to shippers because it is built to disintermediate 3PLs from a process that shippers can manage on their own, said Vaillancourt. He has no qualms about the strategy, saying that most intermediaries already view his company as a cost center rather than a solution provider. Many third parties "don't understand technology, and they don't deploy it well," he noted. That said, some of the bigger freight brokers offer rating software engines within their transportation management systems (TMS).
By contrast, DAT sells its rating product, called "Rateview," to both shippers and 3PLs, according to Mark Montague, industry pricing analyst for the firm. With an estimated $53 billion spent each year by 3PLs to purchase truck transportation on the non-contract, or "spot," market, DAT sees an enormous opportunity to provide freight rating tools to help intermediaries navigate what has become a challenging landscape in the past two years, Montague said. For shippers, Rateview is important because spot rates are a reliable indicator of what truckload rates will look like when shippers begin negotiating contracts with their carriers, DAT said.
SMC licenses its RateWare product to carriers, shippers, and third-party logistics companies. However, the group avoids performing carrier rate comparisons because it wishes to remain neutral, said Brad Gregory, senior vice president of marketing and software alliances. Technology providers like Oracle Corp., SAP SE, MercuryGate, JDA Software Group Inc., and LeanLogistics represent the largest portion of Rateware's business. They use Rateware within their respective TMS suites, Gregory said.
SMC works to pair Rateware with a product called "CarrierConnect," which it developed around 2000 to supply detailed carrier and transit time information on lane segments chosen by users. The organization is beta testing an updated version of "CarrierConnect" that provides users with specific delivery dates rather than just a range, Gregory said.
St. Louis-based Cass Information Systems Inc., a freight bill audit and payment service provider that disburses $38 billion in annual freight payments on behalf of its clients, also doesn't sell its software, which is called "Ratemaker." Instead, Cass uses it to verify the accuracy of freight charges during the auditing process, according to Don Pesek, director, audit and rating services.WHAT TO SHOP FOR
As for what goes into choosing a freight rating system, a first step is for a user to determine if the software's objective is to select carriers or to determine the lowest freight charges. A second is to gauge if the pricing will be available through a licensing agreement or on a "software as a service" basis. Beyond those two fundamental elements, experts said there are a number of common-sense factors that users should consider when shopping for a solution. Eileen W. Hart, vice president of marketing and corporate communications for DAT, said users need to determine if the data source is reliable and that the data stream is as real-time as possible.
Vaillancourt of RateLinx said prospective users should consider whether the software can meet their needs across all modes of freight. They should also investigate how frequently their vendor will update the information (ShipLinx is auto-updated weekly) and how much maintenance they would have to perform themselves, he said.
Pesek of Cass said that a freight rating system should interface with leading enterprise resource planning (ERP) systems like those offered by Oracle and SAP. A platform should also support global transactions, a key feature as more companies expand into international commerce. "The system should be able to handle multiple [foreign] currencies," said Pesek, whose company is updating its own legacy systems to manage more overall transactions and to build capabilities needed to handle complex international transactions.
Gregory of SMC3 said that large LTL shippers using a TMS should ensure that the freight rating software works with the LTL tariffs that the users utilize. Shippers should also opt for a program that can crank out rates at a rapid pace, Gregory said. This is especially important if the rating software will be used to support a network optimization initiative, an intensive and complex exercise that potentially involves the analysis of millions of rate and route combinations.
In addition, the freight rating technology should be compatible with the core technology apparatus a user has in place, Gregory said, adding that a user should not have to re-invent its technology wheel to accommodate rating software.
For small LTL shippers that move a relative handful of loads each day, week, or month, Gregory recommends a simple rating program such as the one offered by Kansas City-based Freightquote.com, which was acquired late last year by C.H. Robinson Worldwide Inc., the Eden Prairie, Minn.-based freight brokerage and 3PL giant. A provider like Freightquote can give mom-and-pop users the rate comparisons they need without the cost of a full-fledged TMS, he said.
Editor's note: An earlier version of this story incorrectly stated that RateWare was not made available to shippers and carriers. It is licensed to those parties. DC Velocity regrets the error.