What Is a Freight Rate Index & How Does It Keep Freight Costs in Check?

What Is a Freight Rate Index & How Does It Keep Freight Costs in Check?

As the freight market continues to stay volatile and causing upward pricing pressure, the need for a freight rate index increases as well. A freight rate index can provide insight into the current market rates for multiple shipping modes. These insights help provide a more strategic, data-driven approach to transportation management that enables managers to devote more time to scenario planning and selecting modes that best align with transportation budgets and service requirements.

Freight and benchmarking data can provide a competitive advantage for shippers of any size, helping them gauge the direction of the freight market and identify business opportunities. That’s why it’s important to understand what a freight rate index is, how it plays into data-driven decision-making, and a few ways it improves efficiency.

What Is a Freight Rate Index?

A freight rate index takes the sum of all freight data and calculates the average cost of transportation. Actively analyzing the data creates a transportation benchmark. This benchmark reflects not only the consistency and value of the data but also the pricing or demand regardless of lane or market. The freight rate index can be vital for gathering specific data that reveal an overview of visibility and network performance, especially the amount of spend within the final mile. Using the index, which combines visibility with applied freight data and near-real-time data insights, helps shippers make informed decisions regarding supply chain transportation.

A Data-Driven Approach to Optimizing Shipping Spend

The scope of a freight rate index is determined by the size of its dataset and the countless analytics insights that derive from that data. Most importantly, there is a clear indicator that businesses using analytics can reduce costs and achieve a stronger return on investment. As reported by SourceToday, “This is where supply chain analytics, which promises to deliver real-time performance visibility and insight to provide businesses with the operational agility, could help provide a competitive edge. A 2020 Gartner survey revealed that over 29% of businesses achieved high levels of ROI using supply chain analytics, compared to just 4% that didn’t achieve any ROI.” Therefore, using analytics to create a freight rate index that’s continuously updated based on the latest market activity helps shippers proactively manage freight spend.

Using a Freight Rate Index to Reduce Freight Costs

Benchmarking helps shippers manage market volatility. Access to benchmarked rates provides a better position from which to negotiate freight quotes or to fix a targeted rate for freight. Knowing where the rates, fuel, equipment values, and market activity lie is important; however, knowing where the market is trending is equally important and crucial to unlocking supply chain optimization. A clearer outlook of market trends and cost projections drives additional savings that can be directed toward optimization efforts. Here are a few more ways an index can help your team achieve savings. These include:

  • Increased accountability among carriers, knowing which carriers offer pricing that aligns well with market dynamics.
  • Using indexed data to identify shipments that should be routed through another mode.
  • Applying data to understand cost projections and when to offset costs with customer-paid shipping or to build in those costs within product price points.

Calculate your potential Saving While Using an enterprise TMS

Realize the Benefits of Data-Driven Freight Management

Many supply chain strategies rely on freight index rates that show meaningful opportunities for improvement. Using that resource, shippers can proactively control costs and benchmark rates. Additionally, a world-class index like ours can be the distinction that helps to utilize a TMS to its full potential in decision-making through data, more efficient daily processes, and more beneficial carrier management. Such benefits can also impact ROI and help optimize freight costs. Using a TMS with an embedded index can be a huge competitive advantage. 

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