Freight Quoting & Rating
Freight quoting and rating is the process by which freight forwarders determine the price they will charge customers for moving cargo. It involves gathering carrier rates (buy rates), applying margins or markups, adding accessorial charges, and presenting a comprehensive quote that covers all costs from origin to destination.
Accurate and competitive quoting is essential to winning business while maintaining profitability. In today's digital logistics environment, forwarders increasingly use Rate Management Systems (RMS) and Quote Management Systems (QMS) to automate and standardize this complex process.
The Quoting Workflow
The freight quote lifecycle follows a structured process from initial inquiry to final acceptance.
Key Workflow Stages
| Stage | Description | Typical Duration |
|---|---|---|
| RFQ Receipt | Customer submits request for quote with shipment details | Instant |
| Rate Inquiry | Forwarder requests rates from carriers or checks contract rates | 1-4 hours (ocean/air), instant (trucking spot) |
| Rate Calculation | Apply margins, add accessorials, calculate total | 15-60 minutes (manual), instant (automated) |
| Quote Preparation | Format quote document with all line items and terms | 10-30 minutes |
| Quote Delivery | Send to customer via email, portal, or instant quote system | Instant |
| Validity Period | Quote remains valid (typically 3-7 days for ocean, 1-3 days for air) | N/A |
Information Required for Accurate Quoting
To generate a reliable quote, forwarders must collect comprehensive shipment details from the customer.
Essential Data Elements
| Category | Data Points | Why It Matters |
|---|---|---|
| Cargo Details | • Commodity description • HS code • Total weight (gross) • Dimensions (L × W × H) • Number of pieces/pallets | Determines freight class, dimensional weight, handling requirements, and if special equipment is needed |
| Origin & Destination | • Pickup address (city, postal code) • Delivery address (city, postal code) • Port of loading (ocean/air) • Port of discharge (ocean/air) | Affects routing, transit time, drayage costs, and applicable surcharges |
| Service Requirements | • Incoterm (who pays for what) • Desired transit time • Shipping date or deadline • Service level (standard/express) | Determines mode selection, carrier options, and urgency premium |
| Special Needs | • Temperature control (reefer) • Hazmat classification • Oversized/heavy lift • Insurance value | Triggers specialized equipment charges, compliance documentation, and additional fees |
| Documentation | • Import/export licenses required • Customs clearance scope • Delivery terms (residential, liftgate, etc.) | Impacts customs brokerage fees, delivery accessorials, and regulatory compliance costs |
Buy Rates vs Sell Rates
Understanding the distinction between buy rates (what the forwarder pays carriers) and sell rates (what the forwarder charges customers) is fundamental to freight pricing.
Buy Rate Sources
| Source | Description | Typical Use |
|---|---|---|
| Contract Rates | Pre-negotiated rates with carriers based on volume commitments (Named Account Rates or Service Contracts) | High-volume lanes, predictable demand |
| Spot Market Rates | Current market rates for immediate shipment availability | Low-volume lanes, volatile markets, one-off shipments |
| Tariff Rates | Published carrier rates (less common in modern freight, more common in LTL trucking) | Standardized pricing, regulated modes |
| Co-Loading Agreements | Rates from master consolidators for LCL ocean and air groupage | Small shipments, routes where forwarder lacks direct carrier contracts |
Sell Rate Components
A complete sell rate quote includes multiple line items:
| Component | Example (20ft FCL China → US) | Notes |
|---|---|---|
| Ocean Freight | $2,500 | Buy rate from carrier |
| Origin Charges | $450 | Origin drayage, CFS handling, export customs |
| Destination Charges | $650 | Destination drayage, import customs clearance, ISF filing |
| Documentation Fee | $150 | Forwarder's admin fee for preparing B/L, commercial invoice, etc. |
| Fuel Surcharges | $200 | Bunker Adjustment Factor (BAF) for ocean or fuel surcharge for trucking |
| Security Fees | $50 | AMS filing, ISF, security screening |
| Total Sell Rate | $4,000 | All-in price to customer |
Margin vs Markup: The Critical Difference
Freight forwarders must decide whether to price using margin (profit as a percentage of sell rate) or markup (profit as a percentage of buy rate). Industry best practice is to use margin, as it provides more predictable profitability and competitive pricing.
Formulas
| Method | Formula | Example |
|---|---|---|
| Margin | Sell Rate = Buy Rate ÷ (1 - Margin %) Profit = Sell Rate - Buy Rate | Buy Rate: $2,500 Margin: 20% Sell Rate: $2,500 ÷ 0.80 = $3,125 Profit: $625 (20% of $3,125) |
| Markup | Sell Rate = Buy Rate × (1 + Markup %) Profit = Sell Rate - Buy Rate | Buy Rate: $2,500 Markup: 25% Sell Rate: $2,500 × 1.25 = $3,125 Profit: $625 (20% of $3,125, but 25% of $2,500) |
Common Mistake
Markup and margin are NOT interchangeable. A 20% margin requires a 25% markup to achieve the same sell rate. Confusing the two leads to incorrect pricing and margin erosion.
Why Margin is Superior
| Advantage | Explanation |
|---|---|
| Predictable Profitability | You know exactly what percentage of revenue is profit, regardless of buy rate fluctuations |
| Easier Forecasting | Financial projections based on sell rate are more accurate |
| Competitive Pricing | Prevents over-pricing when buy rates spike (markup inflates sell rate more than margin) |
| Protects Against Undercutting | Setting a minimum margin target ensures profitability even in rate negotiations |
| Standard Industry Practice | Most modern RMS/QMS tools default to margin-based pricing |
Example: If buy rates increase by 50% (from $2,500 to $3,750):
- Margin-based (20%): Sell rate increases from $3,125 to $4,688 (+50%), profit remains 20% of sell rate
- Markup-based (25%): Sell rate increases from $3,125 to $4,688 (+50%), but profit becomes ~21.4% of sell rate (unintended margin expansion)
Rate Management Systems (RMS) and Automation
Modern forwarders use Rate Management Systems to centralize, standardize, and automate the quoting process. An RMS stores carrier contract rates, applies business rules for margin and surcharges, and enables instant quote generation.
Core RMS Capabilities
| Feature | Function | Benefit |
|---|---|---|
| Centralized Rate Database | Store ocean/air/trucking carrier rates in one system with validity dates | Single source of truth, no manual rate sheets |
| Multi-Carrier Rate Comparison | Search and compare rates across multiple carriers for a given lane | Find best buy rate quickly |
| Margin Management | Apply different margins by customer, lane, mode, or commodity | Flexible pricing strategies |
| Surcharge Engine | Automatically add fuel, security, peak season, or other surcharges | Ensures no charges are forgotten |
| Quote Templates | Generate branded PDF quotes with all line items and terms | Professional presentation, consistent format |
| Rate Validity Tracking | Alert users when rates expire or need renewal | Prevents quoting on stale rates |
| Customer Portal Integration | Allow customers to request and receive instant quotes online 24/7 | Faster response, reduced admin workload |
| Analytics | Track quote-to-booking conversion, win/loss rates, margin performance | Data-driven pricing decisions |
Digital Quote Workflow (Automated)
Time savings: Manual quoting can take 1-4 hours per RFQ. Automated RMS quoting delivers results in seconds to minutes.
Quoting Strategies by Mode
Each transport mode has unique pricing dynamics and quote preparation considerations.
Ocean Freight (FCL)
| Consideration | Details |
|---|---|
| Base Rate | Per container (20ft, 40ft, 40HC) from POL to POD |
| Common Surcharges | BAF (Bunker Adjustment Factor), CAF (Currency Adjustment Factor), PSS (Peak Season Surcharge), EBS (Emergency Bunker Surcharge), GRI (General Rate Increase), port congestion |
| Validity | 3-7 days typical; volatile during peak seasons or supply chain disruptions |
| Origin/Destination Costs | Drayage, CFS, THC (Terminal Handling Charge), export/import customs, VGM filing |
| Margin Range | 10-25% typical, higher for spot market volatility |
Ocean Freight (LCL)
| Consideration | Details |
|---|---|
| Base Rate | Per CBM or per ton (W/M: weight or measurement, whichever is greater) |
| Minimum Charge | Usually 1 CBM minimum per shipment |
| CFS Charges | Origin and destination CFS fees for consolidation/deconsolidation |
| Validity | 3-7 days |
| Margin Range | 15-30% (higher admin overhead than FCL) |
Air Freight
| Consideration | Details |
|---|---|
| Base Rate | Per kg, often with minimum charge (e.g., 45 kg minimum) |
| Dimensional Weight | Calculated as (L × W × H in cm) ÷ 6000; charge on actual or dim weight, whichever is greater |
| Common Surcharges | Fuel surcharge, security screening, IATA DG fees (if hazmat), peak season |
| Validity | 1-3 days (air rates fluctuate rapidly) |
| Service Levels | Direct flights (faster, more expensive), consolidation flights (cheaper, slower) |
| Margin Range | 10-20% for standard cargo, higher for express or specialized |
Trucking (FTL/LTL)
| Consideration | Details |
|---|---|
| FTL Pricing | Flat rate per truck (based on mileage, fuel, equipment type) |
| LTL Pricing | Based on freight class (NMFC), weight, distance, and accessorials |
| Fuel Surcharge | Separate line item, updated weekly or monthly based on DOE fuel index |
| Accessorials | Liftgate, residential delivery, inside delivery, appointment, detention |
| Validity | FTL spot rates: 24-48 hours; LTL tariff rates: more stable |
| Margin Range | 10-25% depending on lane competitiveness |
Responding to RFQs: Best Practices
| Best Practice | Why It Matters |
|---|---|
| Respond Quickly | First quote in the inbox often wins; aim for <2 hours on standard RFQs, instant for online quotes |
| Be Transparent | Break down all charges (freight, origin, destination, fees); customers trust detailed quotes over single all-in numbers |
| Offer Options | Provide multiple service levels (economy vs express) or routing choices when possible |
| State Validity Period | Clearly note "valid until [date]" to manage customer expectations and protect against rate changes |
| Include Transit Time | Customers compare price AND speed; show estimated transit days |
| Note Exclusions | Specify what's NOT included (e.g., "excludes import duties/taxes," "excludes destination storage after free time") |
| Follow Up | If no response in 24-48 hours, send a gentle reminder; if lost, ask why to improve future quotes |
Common Quoting Challenges and Solutions
| Challenge | Solution |
|---|---|
| Stale or Expired Rates | Use RMS with automated rate expiry alerts; establish carrier rate update schedules |
| Inconsistent Margins Across Teams | Centralize margin policies in RMS with approval workflows for deviations |
| Missing Accessorials | Use quote checklists or RMS templates that auto-populate standard accessorials by mode |
| Slow Carrier Rate Responses | Build relationships with carrier sales reps for faster responses; use spot rate APIs where available |
| Customer Rate Shopping | Compete on value (speed, reliability, service) not just price; educate on total landed cost vs cheapest quote |
| Complex Multi-Modal Quotes | Use integrated TMS/RMS that can chain ocean + drayage + trucking + customs into one quote |
| Currency Fluctuations | Apply CAF (Currency Adjustment Factor) or quote in customer's currency with forex hedge |
Key Performance Indicators (KPIs) for Quoting
| KPI | Definition | Target |
|---|---|---|
| Quote Response Time | Average time from RFQ receipt to quote delivery | <2 hours (manual), <5 minutes (automated) |
| Quote-to-Booking Conversion | % of quotes that result in confirmed bookings | 20-35% (varies by mode and market) |
| Win Rate | % of RFQs won vs competitors | 30-50% in competitive lanes |
| Average Margin | Average profit margin across all quotes | 15-25% depending on mode and service |
| Quote Accuracy | % of quotes with no post-booking cost adjustments | >95% |
| Customer Quote Requests/Month | Volume of RFQs per customer | Track growth and engagement |
Resources
| Resource | Description | Link |
|---|---|---|
| Freightos Freight Rate Calculator | Instant ocean and air freight rate estimates | freightos.com |
| Searates Freight Calculator | Multi-modal rate estimates with port-to-port routing | searates.com |
| FreightWaves SONAR | Real-time freight market data and rate benchmarks (subscription) | sonar.freightwaves.com |
| DAT RateView | Trucking spot and contract rate benchmarks (subscription) | dat.com/products/rateview |
| IATA Cargo-XML | API standards for air freight rate exchange | iata.org/cargo-xml |
Related Topics
- Booking Process — converting accepted quotes into confirmed shipments
- Role of a Freight Forwarder — understanding the forwarder's value proposition
- Ocean Freight Rates — detailed breakdown of ocean pricing components
- Consolidation — LCL and air groupage pricing dynamics
- FTL vs LTL — trucking rate structures and break-even analysis