8 Most Important Features of a Freight Rate Index
Each freight rate index on the market has its own strengths and weaknesses. In looking for the freight rate index that works for a company’s specific business needs, here are some areas worth looking closer at:
Establishing a fair rate for a load that needs to move today is difficult if data in the index is based on transports from a month ago or more. Data needs to be current, fresh, and ideally, updated daily. If the index is only providing monthly updates, it won’t be able to provide granularity within the lane definitions that a low latency index can.
It is also worthwhile to make sure that the modes indexed mirror the modes of transportation that a company needs to secure. Some indices are strictly truckload or dry freight, while others can include less-than-truckload (LTL), ocean, rail, and intermodal.
Some indices only vary at the highest levels of aggregation for the lanes, even as high as country to country for lane data. However, for brokering purposes, country to country provides very little practical value.
4. Depth – Sample size
If an index is based on a small sample, then lane data between most points will have few or even no representative data. With an index that has little depth, one load in a lane during a week could skew true rate for a mode or for a specific lane.
5.Rate Determination Method
Rate determination can be easily overlooked, but it is important to understand if the rates are driven by bidded rates or settled/actual rates, as well as distinguishing whether the rates were driven by spot or contractual rates. Bidded rates are often considerably different than what secured loads actually cost in a lane.
6.Buy and Sell
For 3PLs and brokers, having the ability to distinguish between buy and sell rates in a lane can provide a competitive advantage. The two datapoints highlight the delta between what a load can be bought at and what it can be sold at.
For concerns of all types, the procurement process can benefit significantly by permitting a batch analysis for a block of loads or lanes.
8.Accuracy and Adaptability
If the rate index includes regional economic markets then it equips the company to determine a fair rate from Lansing, Michigan, to Towson, Maryland, by including everything in the greater Grand Rapids, Michigan, to Baltimore, Maryland, economic regions. Furthermore, configurable confidence levels allow the manager to set a standard for the lane depth and have the index return a rate that meets that confidence level.