In today’s edition of “SONAR Indices & Insights,” the SONAR team will educate you about another index found within SONAR, the freight forecasting platform from FreightWaves. This week, learn how freight market participants are able to measure if freight pricing control lays in the hands of freight shippers or freight carriers. In this article, you learn what the Pricing Power Index is, what it may tell various freight market participants, and what the Pricing Power Index can do for each freight market participant.
What is the DHL Supply Chain Pricing Power Index?
The DHL Supply Chain Power Pricing Index (DHLPPI.USA) is a weekly analysis produced by the FreightWaves Freight Intel Group using freight data and freight analytics in SONAR and other sources to estimate the current pricing power dynamics between shippers and carriers. The DHLPPI is a tool that will show SONAR users whether shippers or carriers have the upper hand in the negotiations of freight pricing based on current market conditions.
In the chart above, you can see the DHL Supply Chain Pricing Power Index readings which inform freight market participants if shippers or carriers have control of freight pricing in various markets. The chart above has an 80 reading which indicates that the control of freight pricing lies in the carriers’ hands.
What does the DHL Supply Chain Pricing Power tell freight market participants about freight pricing control?
The DHL Supply Chain Power Pricing Index (DHLPPI) measures on a score from 0-100. A score of 50 is neutral, or equal, strength in freight pricing power between shippers and carriers. When the DHLPPI score drops below 50, it’s an indication that shippers have more control of pricing freight than carriers. As the DHLPPI score declines closer to 0, the more control shippers have over the pricing of freight lanes. When the DHLPPI score increases over 50, it’s an indication that carriers are taking control of the pricing on freight lanes. As the DHLPPI score increases toward 100, the more control carriers have over freight pricing.
The DHLPPI score gives SONAR users a high-level view of who holds the power in negotiating spot market rates and contract rate rebids or mini-bids. The DHL Supply Chain Pricing Power index also aggregates and synthesizes many data points including, but not limited to, freight volumes, rejection rates, spot rates and contract rates via freight rate index format, economic data and economic policy.
How can each freight market participant utilize the DHL Supply Chain Power Pricing Index for use cases?
- Carriers: The DHLPPI will give carriers an indication of the power they have in negotiating freight rates with shippers. A DHLPPI score over 50 strengthens a carrier’s ability to negotiate toward the rates it prefers, but a score below 50 reduces a carrier’s ability to negotiate.
- Brokers: The DHLPPI is very important to brokers since they act as a carrier when bidding freight to a shipper, and act as a shipper when booking freight with carriers. The best freight brokers will need to know on which side they have the ability to use their freight pricing power in order to create margins. A neutral market – a DHLPPI score of 50 – can be difficult for brokers and compresses their margins.
- Shippers: The DHLPPI gives shippers an indication of the power they have in negotiating freight rates with carriers. A DHLPPI score below 50 strengthens a shipper’s ability to negotiate a lower freight rate, but a score over 50 can increase a shipper’s tender rejection rate, reducing a shipper’s ability to control its freight carrier costs.
Keep ahead of the freight pricing control by purchasing & using SONAR
In turbulent times, freight market participants need certainty to stay ahead of the freight market and understand the freight demand occurring in each participant’s most important lanes, markets and shipping modes. The premier freight forecasting engine, FreightWaves SONAR, allows participants to benchmark, analyze, monitor and forecast freight demand and costs. SONAR ensures more proactive responses to the market, provides correlations between several indices to guide decisions, and the ability to manage freight budgets or margins more proactively. Click the button below to get a demo of SONAR to see what the platform can do for you.