11 Tips - How to Deal with Volatile Freight Rates
As shown in our Logistics Update, markets have for the larger part of 2024 seen a series of different challenges, affecting freight rates and capacity. The article also outlines the importance of being agile and adaptive in logistics strategies. We have therefore put together a checklist with 11 tips on how a company can deal with large unforeseeable fluctuations in freight rates.
Read previous article; Logistics Update: Volatile Freight Rates in Q4 2024
Q4 2024 has been a period with varying freight price developments across different transport modes. Road transport has seen moderate price increases, ocean transport has experienced volatility with a notable surge towards the end of the quarter, and air freight has maintained high rates due to strong demand and capacity constraints.
These trends highlight the importance for European and Danish businesses to remain agile and adaptive in their logistics strategies to manage costs and maintain supply chain efficiency in a dynamic global transport environment.
Future readiness – how do you as a business prepare for future fluctuations in freight rates?
- Long-term Contracts: Enter into long-term contracts with transportation providers to secure (more) stable freight rates. This can protect the company from sudden price increases.
- Diversification of Suppliers: Explore the possibility of diversifying suppliers and transportation methods. By having multiple suppliers, the company can reduce the risk of relying on a single provider who may raise prices.
- Efficient Inventory Management: Optimize inventory management to reduce the need for frequent shipments. Better planning and consolidating shipments can help reduce freight costs.
- Price Negotiation: Negotiate with existing suppliers to obtain better rates. This could include volume discounts or agreements for fewer, but larger, shipments.
- Supply Chain Optimization: Review the entire supply chain to identify inefficiencies and areas where costs can be reduced. This can include everything from better shipment planning to using alternative transportation methods.
- Customer Communication: If it is necessary to raise prices on products or services due to increased freight costs, the company should communicate clearly and transparently with customers about the reasons for this.
- Technology Investments: Invest in technology that can optimize logistics and transportation, such as transport management systems (TMS) or warehouse management systems (WMS), which can help with planning and cost reduction.
- Market Analysis: Stay updated on market trends and forecasts for freight rates. This can help the company anticipate price changes and plan accordingly.
- International Trade Agreements: Consider leveraging international trade agreements and free trade zones, which can reduce tariffs and other related costs.
- Collaboration with Other Companies: Consider collaborating with other companies for joint shipments or bulk transportation, which can reduce individual freight costs. It is important to analyze the company's specific situation and needs to choose the most appropriate strategies. Additionally, seeking advice from experts in logistics and supply chain management may provide further insights.
- Evaluate your sales terms and how long these contracts are. This way you link “buy rates” and “sell rates” essentially hedging eliminating both up and down side.
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