The freight space is booked and the rate is agreed. Nevertheless, the dynamics of the markets and unforeseen events or fluctuations in demand require continuous adjustment or reassessment of the freight allocation in order to avoid dead freight and possible penalties. So how can transport bookings be managed in the best possible way, taking into account your own requirements and contractual agreements with carriers? Ralf Boelicke, Head of Product and Partner Management at SupplyX, answers this question in our Q&A.
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What exactly does carrier allocation mean and what goals are being pursued?
Ralf Boelicke: Carrier allocation is usually a complex, time-consuming and manual process that involves allocating and booking freight capacities with various transport companies (the carriers). The goal is to make optimum use of the available capacities and resources to meet customer requirements. It is about matching the shipping volume of goods with the carrier’s available capacities in such a way that a high level of capacity utilization and an optimum cost-benefit ratio are achieved.
Companies try to secure guaranteed capacities at certain conditions through contractually agreed purchase quantities. These contracts can include both fixed purchase quantities, which must be transported within a defined time frame on a specific route, and flexible components, which can be adjusted in the event of fluctuations in demand. Therefore, strategic carrier allocation enables companies to increase the resilience of their supply chain, guarantee security of supply, reduce costs and increase transport efficiency.
Why is carrier allocation so time-consuming, what are the challenges?
Ralf Boelicke: Modern supply chains are global and multifactorial – the complexity and time required for carrier allocation result, among other things, from the multi-layered requirements of supply chain management (SCM). The coordination of a large number of people involved, routes and products must be precisely coordinated, taking into account time windows and zones, capacities and costs. At the same time, one of the challenges of carrier allocation lies in the nature of the volatile shipping market. Seasonal fluctuations, port congestion, severe weather and geopolitical tensions, as well as customs regulations and sudden changes in consumer behavior – all of these factors can influence freight allocation and require a flexible and responsive logistics strategy.
Monitoring and adjusting bookings in real time are therefore essential but time-consuming activities. This is because transport contracts often contain complex agreements on freight rates, service level agreements (SLAs) and penalties for non-fulfillment. If the agreed purchase quantities are exceeded or not met, this can result in surcharges (penalties or dead freight) – also retroactively – or even in the rate or transport capacity no longer being offered at all.
What happens if your own requirements for delivery times, quantities etc. change and conflict with the contractual agreements with carriers?
Ralf Boelicke: Such changes can have a number of consequences that require careful management. In addition to the penalties already mentioned, for example if the agreed purchase quantity is not met, there is also the possibility that companies will have to access the so-called spot market in order to acquire additional capacity or reduce excess freight space. However, the rates on the spot market are much more volatile and are generally higher than the contractually agreed rates – short-term bookings are therefore associated with higher costs. Swaps, i.e. offsetting transactions with other companies, can also provide relief: Freight space is swapped in order to cover the company’s own requirements and maximize capacity utilization and efficiency.
Companies can also seek renegotiations with carriers to reflect the changed conditions and agree new contracts on freight rates, deadlines and purchase quantities. However, this may entail a change in SLAs: For example, a change from a premium service with a guaranteed delivery time to a standard service with a more flexible delivery window could be the consequence.
How can platform solutions and tools contribute to more agility in transport bookings without violating contractual agreements?
Ralf Boelicke: Digital technologies and platform solutions offer many opportunities to minimize this area of conflict. With real-time data analysis and dynamic pricing, modern tools enable flexible and responsive freight management. By integrating ERP and WMS systems, using AI in order to predict forecasts and by accessing digital marketplaces, the supply chain can be managed and controlled efficiently and with data support.
Cloud-based platforms, API ecosystems and blockchain help to simplify contract management and increase the transparency of transactions. There are also tools that check whether transport bookings are in line with contractual agreements and issue warnings in the event of deviations.
How does SupplyX support companies in the area of carrier allocation?
Ralf Boelicke: With our many years of expertise in SCM and freight forwarding, we act as intermediary operators to manage the complexity of carrier allocation for our customers. This includes coordinating transportation, including carrier selection and booking, negotiating freight rates and ensuring compliance with international trade regulations. If necessary, we develop adaptation strategies for our customers and use contingency plans, our network and alternative routes to ensure resilience to dynamic market conditions and changing requirements. We design carrier allocation with efficiency in mind and use digital technologies as an important lever to align operational excellence with strategic business objectives.
Mr. Boelicke, thank you for the interview.
Further Q&As relating to logistics and supply chain management
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