Episode 8 Jun 25, 2020

Solve the Rate-Setting Challenge in Shipping & Transportation

Rate setting in the shipping and transportation industry hinges on striking a delicate balance between all the factors that drive rate: Mode, origin, destination, time of year, capacity, and more. In this episode, Zilliant General Manager of Commercial Excellence Barrett Thompson and Zilliant Senior Director of Solutions Consulting Jay Foulkrod discuss how technology can play an assistive role in finding pockets of opportunity in this industry that’s rich with opportunity and complexity. Listen now to learn how rates are set today and a reimagined approach to setting smarter, more varied rates that win more business and do so profitably. Find the whitepaper mentioned in the episode here.

Featuring
Jay Foulkrod

Jay Foulkrod

Get the right rates for the right types of service to the right customers. Perhaps that means some services that they ask for, some types of packaging, some types of lanes, merit a deeper discount than others. It's all about understanding what that customer is most sensitive to and assembling the offer that makes sense in light of that. 
- Jay Foulkrod, Zilliant

Episode Transcript

Barrett Thompson: Welcome to B2B Reimagined. I'm Barrett Thompson, the General Manager of [00:01:00] Commercial Excellence at Zilliant. I'll be your host for this session. And I'm joined today by Jay Foulkrod. Jay is a senior director in the Business Solutions Consulting team, and he's got some great experience in shipping and transportation.

Jay Foulkrod: Thank you, Barrett. Good to be with you.

Barrett Thompson: Jay, would you take a minute and share some of your experience that you've had with customers in this space and a little bit about your role and background?

Jay Foulkrod: Sure. I've worked with number of customers, probably several hundred across different industries, working on challenges of pricing and costing, and how we apply data science to solve different areas of business performance, improvement. Particularly, I've worked within the different types of services companies, including some shipping and transportation and logistics companies to look at creative ways to bring advanced technology and data science to bare, to help them optimize their performance.

Barrett Thompson: That’s great. I really appreciate you taking a few minutes to share. I've seen, I'm sure you have, too, each vertical has its uniqueness. And shipping and [00:02:00] transportation are no different. What are some of the relevant dynamics that you found that make this industry one that's a particularly complex to process and manage from a rate perspective?

Jay Foulkrod: Great question. There's just so much richness and variability in terms of what's the right rate to charge for different sorts of packages that you want to ship or different things that you want to get from point A to point B, based on the mode of shipping… Where's the origin? Where's the destination? What time of year is it? What is our capacity situation on a piece of equipment?

So, all these different variables make it very complicated to figure out. What is the best rate that I can get, depending on all these factors? There's too much there really for a typical human to hold in their head and know for certain.

And this is where different types of technology can come in and play an assistive role in finding pockets of opportunities that you and I just can't know off the top of our head.

Barrett Thompson: [00:03:00] Give us a peek into what you find are the typical frameworks that are being used to set and manage rates today.

Jay Foulkrod: We see a range of ways that people go to market with different types of pricing. And certainly, in many shipping and logistics companies, is a notion of a tariff rate or a daily rate or list rate that's published. Periodically, it might change from day to day, week to week, or it might be constant.

Some of that might have some geographic variability to it. You might have more of a fixed list rate in one region and more of a daily varying rate in another region. And that often is potentially, a rate that retail customer is quite transactive. We also see sometimes that there is a predefined rate matrix, and it might be tied to seasonality or the size of the shipment or the size of the customer, that says we're going to give you a certain rate that makes sense for an origin and destination based on some of those factors [00:04:00] where a certain discount below the list is warranted, just based on the commercial reality of who you are and what you're shipping.

We see sometimes that customers will institute rate agreements. If you are doing enough business in a particular industry, shipping certain types of goods, certain lanes, maybe it makes sense that we need to fix a price for you there so that you have everyday rates that you know what you're going to get. One of the challenges can be “How do you set that?” “Where do you and how do you scope it?” Right? It can be an insidious problem where you give an across-the-board discount for everything a company ships, when it's only warranted for a certain portion of their shipments. Other stuff could be priced at a less aggressive mode of pricing.

All those get even more interesting and challenging as we think about the growth of new competitors in the logistics space. As we think about the increasing transparency with eCommerce sites and in ways [00:05:00] that buyers and shippers can go online and compare. So how do you keep all those rates aligned to each other along into the market, given all those different sorts of changing items and pressures?

Barrett Thompson: Those are interesting to me. You mentioned the blunt instrument pricing when you're given that same discount all the way across when maybe it's only supported in a couple of lanes or a couple of modes.

That's a familiar thing. I think we've seen that in B2B sometimes as the best you can do when you're just operating with your manual tools. You mentioned transparency, the increase there, that's a changing thing. Is there something that enables customers to be more aware or buyers to be more aware of what's happening on rates in the market?

Is that new or just people just waking up and taking advantage of that?

Jay Foulkrod: I think it's not entirely new. I think we see technology advancing and human generations urgency. Right? And these younger generations expect more ability to do self-service, to see what the price is going [00:06:00] to be just through a simple online comparison.

So that's the challenge. Right? Is being competitive online but keeping your core business that might be quoted offline and agreements and in other systems, other sources, keeping it well aligned so that you're not shooting yourself in the foot?

Barrett Thompson: Talk to me about how shipping and transportation industry is doing with regard to eCommerce.

For instance, which I think is an aspiration and an initiative that's gaining a lot of traction in other B2B verticals. How about this vertical?

Jay Foulkrod: Yeah. There certainly is a push to not only expand, but even normalize the way business is done online and through eCommerce. And there are many opportunities to reduce customer acquisition, customer costs, to serve potentially increase customer satisfaction.

If a business can figure out how to appropriately target and offer and target our price to the customer in a way that it was frictionless. Right? It doesn't involve the same [00:07:00] level of selling effort. And yet you can get a better target offer to that customer that is more in line with your strategy, if that can all be programmatically deployed online. So, that is a big opportunity that many shipping and logistics companies have just begun to scratch the surface on.

Barrett Thompson: Okay Jay. Let me pull a couple of these things together. You've got the dynamics of the industry. You have the eCommerce emergency. You have transparency. You have a different generation of buyers and so on.

If you bring those things together, sounds to me like there's going to be some complexities in getting segmentation, getting rates segmented, working with customers across a wide range of services and support that they need. Can you talk about some of those challenges in getting rates right in that environment?

Jay Foulkrod: Yeah, definitely. You mentioned some drivers of some of the complexity there. And I'm just going to add a few more. How often does the shipper ship? How frequently? What's the size of what they're [00:08:00] shipping? What's the size of their overall business? Are there any special handling or service requirements on the first mile or on the last mile of that shipment, for example? How does that drive you to consume operating expenses? What is it that's being shipped? What's the value of that package? And what is it among everything that a shipper might be shipping that really matters most to them?

That's really the essential question. Right? It's understanding what they ship most. What services do they value most? Which lanes? What dominates their spend? What dominates their attention? What is the profile of what they ship? That's really what we want to solve for, and understand, so that we can make the best sorts of offers to the right types of customers.

Barrett Thompson: Jay, one thing I hear you saying there - I want to be sure I got it right. As opposed to just giving a customer a single rate discount, when you said the things that matter, most of them are the most important to them. Are you talking about [00:09:00] varying the rates or varying the discounts, within the matrix, within the menu of services, and so on within an individual customer, as opposed to just varying the single discount level across customers?

Jay Foulkrod: Yeah. I think that's a fair statement. Maybe I'll just elaborate and say, what we're really saying is, you want to be appropriately targeted. You want to be getting the right rates for the right types of service to the right customers. And perhaps that means some services that they ask for, some types of packaging, some types of lanes, merit a deeper discount than others. And perhaps others don't, because they're less dominant, or perhaps they're simply less important to them. And some aspects of what a customer ships could be left more to default pricing rules, or matrices in the system, where they're less sensitive, rather than having to put an agreement in place to fix pricing on certain things to [00:10:00] which the customer is more sensitive.

It's all about understanding what that customer is most sensitive to, and assembling the offer that makes sense in light of that.

Barrett Thompson: I completely get that. In fact, we've seen that work in other B2B industries really well. And I think there's an opportunity, as you're saying, to put that in practice here, and I expect it's going to have a positive result.

Jay, now that we're in the middle of 2020 and most business discussions aren't complete unless we're asking ourselves: “Is there anything that we need to be thinking about mid-COVID or post-COVID, that might impact the ideas and approaches and strategies being used in the industry?” Do you have any insights into what is going, or might be going on? What the shipping and transportation industry might need to get ready for the rest of 2020 and maybe 2021?

Jay Foulkrod: I think it’s certainly been an interesting time where we're seeing that there are spikes in demand for certain services and declines in other areas combined with constrained capacity in your [00:11:00] operations, in some cases, to service that demand. What does that mean from a pricing perspective?

What does it mean when you think about it for the short-term in terms of what you could potentially command given the constraints that you're operating under? And then, what do you want to do to make sure that you're doing the right thing by your customers, for the long-term as those things begin to shift, and supply chains begin to shift back to a more normal order? Right?

Where does it make sense to take advantage of opportunities that you have? What opportunities should you leave on the table? These are all important questions that shipping logistics companies are facing.

Barrett Thompson: I can imagine that shipping and transportation is going to have some of the same pressures other B2Bs are having, which is, everyone who's buying is saying: “I'm getting crushed in the market. I need a discount.” Right? There's customers or buyers have always had their various reasons that they're asking for discounts. There are various justifications. This one [00:12:00] feels like a very pervasive justification that they're going to bring back to the shippers and say: “Hey, you just need to provide me some relief because I'm drowning here for a host of other reasons that are about my business, my industry, in response to COVID.”

I don't know what the shippers can say about that. They're not responsible for the other pains or challenges that their customers face, but there might be some wisdom in thinking about: Who you want to have in your portfolio when the smoke clears? Right? Which customers do you want to hang on to no matter what and which are those that you might not be willing to make a concession for in the short run? Maybe that's as far as anyone can go.

Barrett Thompson: I'm borrowing from a couple of other conversations I've had, Jay, where I don't know of a single B2B seller that isn't hearing from the buyers: “I'm just [00:13:00] going to need some price relief” …on whatever it is. Right? Because they're feeling the pressure overall.

And so, they're not saying their usual justification: “I can get it less for somewhere else.” …or: “Hey, how come you're doing this or that on my rate? They're just looking for relief wherever they can get it. I don't know how that's going to balance out.

Jay Foulkrod: I think the answer to the question: How do you respond? …is business is about making trades. Right? Again, understanding what that customer is most sensitive to is key. Right? Perhaps you do need to be more cautious and careful in certain things to what you know they're sensitive. But that doesn't mean that you need to concede everywhere in which you do business with that customer.

And given that any sort of negotiation is about some give and take. What sort of recoupment can you see from a cost-to-serve perspective in exchange for potentially some of the base rate savings you're [00:14:00] willing to pass on?

Barrett Thompson: Your idea about trades is a really interesting one because it reminds me of a statement I’ve heard used, some years in the past, where they heard a seller say to a buyer: “I can give you almost any price you want if you can give me the buying behavior I want.” And that is at the essence of this trade so maybe it's an opportunity to say: “Yes, I know you want relief on that three-day ground shipping. I might be able to accommodate that if you start giving me some of that overnight that I haven't been getting from you before.” …and get into a constructive dialogue about how to change the portfolio or the mix, get at expanding into parts of the business that you want. And your willingness to do that is, is supported by rate changes that you'll make in order to get a bigger part of the portfolio. Those are not new ideas, but I think it's just applying it in the context and understanding maybe that it is about trades versus about hard “yes,” or ‘no’s,” [00:15:00] or “Gee, I'm just going to have to make a sacrifice. I'm going to have to bleed so my customer doesn't bleed.” Maybe there's a trade there that you can make. It's a great idea, Jay.

Let's pivot a little bit for a moment and just characterize the industry, some of the challenges, current practices, and let's look a bit toward how to help customers in this space. What are some of the ways that we're helping customers get rates aligned, helping them with that eCommerce pricing and the efficiency of that, reducing costs to serve or anything else?

Jay Foulkrod: We're seeing a big push in the industry, as you have new competitors entering different challenges that you're facing with COVID that there's an ever increasing push, to grow sales, hold the line, or grow sales without increasing the cost to sell.

And to really achieve this, requires the smart deployment of the types of assistive technologies that Zilliant offers. What I mean is, being able to look across your whole portfolio of [00:16:00] pricing and make sure that all channels of price - from online to your back-office price agreements - are all well-aligned to each other and reflect the market dynamics and move efficiently as the market's changing, which requires a fair amount of system plumbing so that you can have all that to be as responsive as you need it to be based on those changing dynamics. We're also seeing companies that want to increase their capacity for being able to do frictionless selling.

So how can we have the pricing that we publish online that customers see, be something that is smart, that even reflects some human-like intelligence, in terms of being an offer, that the first offer made to that customer makes sense, and is something that induces them to buy, while also meeting our business objectives?

And without a human ever having to be involved to do that? These are the kinds of things that we're helping companies with, along with when people are involved in the negotiation - helping them [00:17:00] smartly and efficiently target those offers and come to a decision, understanding what matters most to that customer. Right?

Again, not understanding where that customer is most sensitive, and positioning the right things and the right prices with respect to that known sensitivity - all these types of solutions - call for a level of data science and artificial intelligence to mine data for the trends and opportunities.

You can use technology to help sort where those opportunities are and maximize the performance of the process and the results in a way that maximizes the business performance.

Barrett Thompson: Jay, I would imagine this is a very data-rich environment. I was just imagining like every load, every shipment, from here to here on this date at this weight… Am I right? Is that the case?

Jay Foulkrod: Yeah, absolutely. There's so much data that's of interest looking at what a customer ships to what a shipper ships to whom, to where, from where, what types of services that [00:18:00] they're getting, in what proportion, how much of that wallet share that customer do we think we have, versus what goes to the competition and across what modes of transport. When we can mine all that data, we have the ability to better understand what that customer needs, what part of the wallet we're getting, and price strategically in light of that.

Barrett Thompson: I want to pick up on one thing you mentioned about on the one hand, there's a potential to let the technology automate and handle pricing with customers in a way that might not require a human involvement from the seller side.

Jay Foulkrod: Right.

Barrett Thompson: But at the same time, buyers crave the experience as if they were being catered to having things tailored by a human. So, a part of that you mentioned was getting the price right the first time, because you - just like a human would. Right? …using the [00:19:00] same kind of intelligence and cues, drawn from the data so that we're objective and we're accurate, and we're current to get that price right.

One of the dynamics I think buyers sometimes secretly enjoy, is the dynamic of negotiating. Because everyone likes to feel like they did something wonderful when they got a discount. Right? …scored an extra five points or ten points. Would it be possible to bring together the automation and negotiation so that the buyer can have the negotiated experience?

Could that be done with the technology and not have to insert a human each time there's a desire to go back and forth on price a couple of times and settle on a final value?

Jay Foulkrod: Absolutely. In fact, that's one of the things that our solution enables, is for a range of negotiation situations. Right? That, potentially that your system itself, your website can negotiate with the customer and allow for some back and forth and haggling between the customer and [00:20:00] your online presence to allow the machine to come to an agreeable price and offer with a customer and also to pass out off then to a human when it makes sense to for human-to-human negotiation. These are all exciting new possibilities.

The advanced technology and solutions that Zilliant can bring to bare that the customers can enjoy and benefit from.

Barrett Thompson: That sounds wonderful. I can appreciate the concern that some might have that, despite all that they've attempted to do with the data and create a price, if that's just a take it or leave it price, in the end, I don't want my customer to leave it.

I want to be able to get feedback and make sure that I've trued that up where I have to, but haven't given it away, where I don't have to. Automated negotiation sounds like a cool thing that would get you where you want to be. But not tie up a bunch of human resources unnecessarily, which becomes a bottleneck for a lot of companies when they're trying to do people.

Jay, we've come up on our time for [00:21:00] this session, but I really want to thank you for taking a few minutes to chat with us about the industry.

Jay Foulkrod: Thank you for having me.

Barrett Thompson: For our listeners, let me ask you to please take a look into the show notes where you will find a link to a two-part white paper on driving margin and operational benefit and the shipping and transportation industry.

I recommend that you check it out. It’s got some further ideas that will be helpful for you. Thank you for joining us on this podcast. And we look forward to hearing you on our next session.

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