We recently asked an European Carrier for a Spot rate on a big
shipment. The airline gave a quote and as we insisted that price was the critical factor on this
shipment the carrier asked us to handover the shipment against which they will
review further reduction. Subsequently, the carrier did confirm a reduced price.
In certain instances, ever wondered how we have reduced price
after we had quoted or sometimes after the shipment has been handed over to
the carrier? Yes, when the airline reduced the rates in such instances, we have passed on the benefit to
our clients. However, what’s the logic beyond our relationship with the
carrier?
Hurdle Rates!
In layman’s term Hurdle rate is a dynamic minimum bid
rate generated using automated business technology. It’s computed based on
Customers bidding across the globe on a specific carrier, being dynamic changes
on a day to basis and and encompasses a route or sector. Based on the Demand and
Capacity this hurdle rate is computed.
Hurdle rate ensure optimized revenue to the airline on any
given day for handling cargo. The system will determine whether rates
established by Customers satisfy the hurdle rate criterion, if not the booking
will not be accepted.
What does this
mean from a service perspective?
Flight
Capacity Utilization
Automated acceptance would be based on a validation of the
shipment value against the yield-performance profile of each flight. The
over-arching objective of flight capacity optimization is to ensure that
low-value shipments are assigned to lower-demand flights and that capacity on
high-demand flights is protected for higher-value shipments.
This is where if price negotiated is on low yield for the
airline this would mean that the service I.e. transit and schedule in all
probability is impacted. Higher yield shipments get priority over that of lower
yield shipments.
Another key aspect of hurdle rate pricing is also whether the
shipment is dense or volume. Volume shipments generally end up with higher
hurdle rate meaning that the pricing is significantly higher.
Most carriers now use automated business technology driven tariff management and flight capacity utilization to run cargo operations.
This means one day you could have a particular price and the next time a different one for the same sector on the same carrier. Its all about supply and demand!