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The Rate Engine

The Rate Engine is the heart of a good TMS

Rate Engine: The “heart” of the TMS

The heart of any good TMS is found in its Rate Engine…consider the old joke…”What do you call a TMS without a good rate engine? Excel”

….which, by the way, is still a commonly used operational tool…a recent study found that 67.4% of supply chain managers still use spreadsheets as their primary operational tool

Today, every TMS provider has come to realize that a good TMS must have a good Rate Engine; one that can manage & respond with basic freight cost information. The most common methods for these rate engines are:

  • API (webservices) gateway that connects to all the nationally known carriers
  • Rate Ware that focuses on LTL carriers and uses their rate base
  • Truckload custom rates, usually as simple as Per Mile, Flat, or Pallet rates
  • Load Board connections to enable Spot market rates

 

Users realize that the rate engine is a core TMS functionality, that will “rate shop” contracts and freight rates within the TMS platform.

And in most of these TMS platforms, the Rate Engine will efficiently return all the desired rates & cost information.   But in almost all cases, these rate engines are only focused on freight rates…and is mainly used for:

  • Basic planning
  • Shipment rating
  • Freight bill auditing
  • Client billing charges

In each of these cases, the rate engine merely “regurgitates” the rates its requesting.

There’s also a current trend to use only API based rating (also known as webservices rating), because the benefits are a) quick implementation (all you need is a pre-negotiated contract with the carrier and credentials), and b) no maintenance (i.e. no Tariff building, no rate base needs, and no need for FSC to update).

But the cons of API-based rating is that their capabilities are limited:

  • No Audit or post audit visibility – Users are 100% reliant on the carrier to provide accurate rates
  • Slower speed & limited request quantities – requesting rates from multiple API carriers will definitely slow the response, not to mention if the carriers are having technical problems, you may not even get rates. And most carriers will limit the number of requests within a certain timeframe
  • Regional & smaller carriers have not adopted nor have the resources to offer API rating…so, either shippers are leaving many qualified carriers on the table…or they have a separate, manual process for these carriers
  • The majority of API based rating are in the LTL industry, so if you’re doing a lot of multi-modal or intermodal using rail, ocean or air cargo…you’re out of luck

 

A good rate engine must accommodate a Hybrid approach and offer:

  • Configuration - Rates that can be configured / calculated to meet the transportation needs; per mile calculation for OTR, Pallet or other handling per Unit calculations, etc.
  • Integration – bi-directional API connections…direct to carriers and to Spot markets, but also to other 3rd party rating sources, such as Digital Brokers, Freight Forwarders, or Co-Brokers…but also into the rate engine from other systems (WMS, Procurement, etc.); and it must also accommodate EDI & XML formats
  • Batch Rating - enable rating not just when a shipment is ready to move, but for Planning & Cost Forecasting, as well as Audit & Settlement and/or Billing & Invoicing needs after the shipment is completed
  • Calculation modules – this is the rate engine’s “internal” calculation module that allows for different parameters…such as freight rates, transit times, number of zones/areas crossed, or number of stops and/or time at each stop…but also handles different variables…such as Linear & Spatial measurements (inches, meters, cubic feet, gallons, etc.), Weight measurements, and Time measurements
  • Modeling / Analytics – for example, a broker can rate the last 6 months of a prospect’s shipments to look for freight cost savings (compare agreements and rates)
  • Self-help – expose the rate engine request to other departments or external prospects…Noone likes receiving multiple calls from the product procurement department for inbound freight pricing for their PO’s…or when you go to a carrier or brokers website to get a quote…only to get a response that someone will call me back

 

The catch is, most good rate engines are either expensive & unreliable, or can only be used within the TMS platforms. In order to utilize them, the whole TMS platform must be implemented. Introducing, G2Mint!