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How to Enhance Ocean Carrier Revenue Management with Dynamic Pricing

Tomas Swinburne
Sep 09, 2020
BlueX dynamic pricing

Dynamic pricing is the next evolutionary step for ocean carriers to increase profitability. As a FreighTech tool, dynamic pricing is part of a series of digitally innovative technologies reshaping the shipping industry landscape.

Maersk’s Q2 results showcased their online spot platform (with dynamic pricing) as an effective tool to enhance revenue management. This tool accounted for an astonishing 41% of their spot rate cargo and helped Maersk triple their Q2 profits despite a decline in volumes due to the COVID-19 pandemic.

These figures demonstrate that the industry is changing rapidly, and ocean carrier E-commerce deployments play a major role in maximizing profitability.

“The digital change in the industry has been massively accelerated and anyone not ‘on the train’ at this point needs to play catch-up real quick.”

CEO of Sea-Intelligence Maritime Consulting, Lars Jensen
Maersk instant quote usage nearing half of spot bookings, JOC, August 19, 2020

Part of catching up is being able to implement dynamic pricing, and we’re here to explain what it is and how to adopt it.

What is Dynamic Pricing?

Dynamic pricing is a type of revenue management that automatically sets spot pricing depending on supply and demand as market forces change and develop.

Factors that affect spot rates in ocean shipping include factors that shape supply and demand like peak season surcharges, bunker adjustment factors, currency adjustment factors, and many more.

The function of dynamic pricing is to maximize revenue by matching spot rates with customer expectations based on market forces and creating price points as demand changes. Because it allows pricing changes 24/7, dynamic pricing helps to protect the bottom line.

Dynamic Pricing Maximizes Revenues

Ocean Carrier Dynamic Pricing

It’s easy to see how dynamic pricing improves carrier outcomes when compared to static pricing by looking at the following chart. As supply and demand changes, dynamic pricing is able to modify price rapidly to maximize revenues which is visualized as the orange area.

Example of How Dynamic Pricing Works – Airline Industry and Uber

The implementation of dynamic pricing has occurred across many large industries. Here are a few prominent examples.

The airline industry uses dynamic pricing algorithms, driven by AI, to offer ‘personalized fares based on passenger flight history,’ flight class, destination, and travel type.

The ATPCO (Airline Tariff Publishing Company) provides ‘technology, pricing, and data to airlines, travel agencies, and tech companies.’ This technology includes dynamic pricing models that allow continuous dynamic pricing and dynamic pricing within predefined pricing points.

Such automation in pricing allows ATPCO technology users to customize fares for individual customers.

In the automobile industry, Uber utilizes machine learning to predict pricing by using the following measurable factors (according to data root labs):

  • Traffic patterns
  • Time of day
  • Weather forecasts
  • Historical data
  • Holidays
  • Global news

The key takeaway is that industries that have adopted dynamic pricing have been able to react better to changes in supply and demand. Firms adopting dynamic pricing early within those industries have been rewarded with a competitive edge over their competitors along with increases in sales and profit margins.

How Does Dynamic Pricing Work in Ocean Shipping?

At BlueX, we understand the importance of an AI-driven Dynamic Pricing Solution as part of an Ocean Carriers E-commerce solution.

We built a solution that forecasts suggested pricing to ocean carriers based on measurable and predictive factors. Some of these factors include:

  • Historical data
  • Competitor index
  • Inventory levels
  • Speed of sales

Real-time Supply-side Input: Container Inventory Levels

Ocean Carrier Dynamic Pricing Solution

In short, BlueX Dynamic Pricing allows ocean carriers to use AI-driven algorithms to generate revenue-maximizing price points as demand changes to help protect the bottom line.

Why Does Dynamic Pricing Matter in Ocean Shipping?

Maersk and Hapag-Lloyd, despite the COVID-19 pandemic, grew profits significantly in Q2 of 2020, with other carriers cutting their losses and having expected gains for the rest of 2020, according to the Wall Street Journal.

With the US-China trade war taking a back seat as the pandemic continues, Trans-Pacific trade has increased as higher volumes are expected, with rates increasing to 2.5x in August 2020 when compared to pricing in March of the same year.

Ocean carriers can utilize dynamic pricing to manage dynamic market changes most effectively. It’s a proven tool already used by several of the largest ocean carriers today.

According to Business.com, dynamic pricing can help ocean carriers to:

  • Effectively control revenue management
  • Have flexibility in pricing without compromising brand value
  • Create greater savings in the long-run
  • Have control over systems with reduced chances of errors

Ocean carriers are looking for sustained profitability and dynamic pricing is one of the critical tools in reaching that goal. It’s now time for ocean carriers to get on the boat with dynamic pricing to take full advantage of technology in helping to manage their revenues.

Key Insight – Dynamic pricing is part of a holistic digital strategy that incorporates digitalizing ocean carrier operations. BlueX has been helping carriers deliver on the holistic strategy through their White-label E-commerce Platform.

How to Get Started with Dynamic Pricing on BlueX

Getting the most out of your spot rates starts with more than just dynamic pricing. It’s about a larger digital transformation, which includes:

  • Online booking platforms
  • Rate and inventory management
  • Business intelligence insights
  • Real-time data

We at BlueX created the ready-to-go White-label E-commerce Solution to give ocean carriers the capabilities to manage rates and schedules online, along with actionable business intelligence reports. We are also leading the charge for greater profitability with our revolutionary AI-driven Dynamic Pricing for revenue management.