Freight allocation has always been characterised as the act of finding a quality carrier for a transport at the right price, confronting large organisations in particular with the challenge of creating uniform methodologies and structures. The process often starts by simply choosing the right base strategy:
- How many service providers do I want to use?
- What type of service provider (national/international... with or without owned fleet) do I want to use?
- What is my mix regarding contracted freight rates and daily updated spot market allocation?
- Which processes do I want to outsource or keep in-house?
Once these questions have been answered, various carriers are usually selected through freight tendering, which establishes capacity guidelines and transport prices, and contracts can then be arranged. Especially in the transport price area, there are extensive price and surcharge tables as well as associated regulations due to differing, country-dependent tariff structures.
To ensure that the tariffs and rules were applied in the daily routine of transport allocation, a first generation of freight rate management systems was developed about 20 years ago to ensure tariffs and rules were applied in the daily routine of transport allocation. While these systems were initially only used for the central storage and administration of freight rates, the necessary calculation logic was quickly developed so that freight could be allocated automatically. For this purpose, the systems check various parameters such as loading and unloading location, volume information, information on the goods to be transported and any express surcharges (among other criteria) based on the transport order. Capacity agreements with the carriers and automatic control of allocations among different carriers are also important considerations. Product designations for this generation of systems are freight or tariff databases, rate management systems, automatic transport allocation or automatic carrier determination systems. For transports in the Transporeon platform, this system is simply called Rate Management. A general feature of these systems is that they are based on fixed, predefined conditions. There is no automatic integration of information from daily market activities.
This is where the new generation of freight allocation systems comes in.
At Transporeon, these developments are summarized by the term Smart Transport Allocation. Our first-generation systems have been extended by Big Data and AI-based processes and analyses. Depending on the market situation, technology makes it possible to decide dynamically between allocation based on freight contracts or daily updated spot market allocation. The most recent development in this context in the field of Smart Transport Allocation is what we call Price prediction. With the help of AI-based models, the freight allocation system evaluates market behaviour to predict expected costs for a transport. This information is made available in the system and is usually combined with other decision-making features to facilitate users in choosing the right allocation strategy.
Additional decision-making features also include results for analysing carriers looking for connecting loads. The Connecting Load Agent analyses which carriers with a truck at the transport loading location are also searching for a connecting load. In combination with Offer prediction, which predicts the number of expected offers when selecting a daily spot market allocation, a recommendation for the optimal allocation scenario can then be made.
The new generation of systems is constantly being improved as models are optimised and the underlying database is expanded. Data quality is also of critical importance here and is another building block for continuous optimisation. Additionally, the prediction quality is constantly being contrasted against actual data so that a continual improvement process is always in progress. The new generation of AI-based freight allocation systems is therefore an ideal supplement to existing rate management systems and, when used in combination, leads to dynamic and market-oriented transport allocation. Or simply said: Smart Transport Allocation.
If you want to learn more and understand whether your transports are suitable for Smart Transport Allocation, please contact us. Our experts are available at any time to discuss your supply chain needs.