Rate Engine: The “Heart” of the TMS

The heart of any good Transportation Management System (TMS) is found in its Rate Engine. Consider the old joke:

“What do you call a TMS without a good rate engine? Excel.”

Interestingly, this isn’t far from reality; a recent study found that 67.4% of supply chain managers still use spreadsheets as their primary operational tool.

The Evolution of the Rate Engine

Today, every TMS provider recognizes that a good TMS must include a robust Rate Engine, one that can at minimum manage and respond with basic freight cost information. The most common methods for these rate engines are:

• API (web services) gateway that connects to all the nationally known carriers
• Rate Ware focused on LTL carriers, using their rate base
• Truckload custom rates, typically structured as Per Mile, Flat, or Pallet rates
• Load Board connections to enable Spot market rates

The Role of the Rate Engine

Users recognize that the Rate Engine is a core TMS function, allowing the system to “rate shop” contracts and freight rates efficiently within the platform. However, most of these rate engines primarily focus on freight rates for:

• Basic planning
• Shipment rating
• Freight bill auditing
• Client billing charges

In these cases, the rate engine often merely “regurgitates” the rates it receives.

API-Based Rating: Pros and Cons

There is a growing trend towards API-based rating (also known as web services rating) due to the following benefits:

• Quick implementation (all that’s needed is a pre-negotiated contract with the carrier and credentials)
• No maintenance required (no need for tariff building, rate base management, or Fuel Surcharge updates)

However, there are some significant downsides:

• No Audit or Post-Audit Visibility – Users are entirely dependent on the carrier for accurate rates.
• Slower Speed & Limited Request Quantities – Requesting rates from multiple API carriers may slow response times, especially if carriers experience technical difficulties or limit request quantities.
• Limited Coverage – Many regional or smaller carriers lack the resources to offer API rating, forcing shippers to either leave out qualified carriers or handle them manually.
• Industry Limitation – Most API-based rating solutions cater to the LTL industry. If you’re handling multi-modal or intermodal shipments like rail, ocean, or air cargo, you may face limitations.

A Hybrid Approach: The Future of Rate Engines

A good rate engine must adopt a hybrid approach and offer:

• Configuration – Flexible rate calculations (e.g., per mile, per pallet, or handling per unit calculations).
• Integration – Bi-directional API connections to carriers, Spot markets, and third-party rating sources such as Digital Brokers and Freight Forwarders, with support for EDI & XML formats.
• Batch Rating – Rating not just for immediate shipment needs, but also for planning, cost forecasting, auditing, and billing post-shipment.
• Calculation Modules – Internal calculation modules that consider variables like freight rates, transit times, zones, stops, linear measurements (e.g., inches, meters), weight, and time.
• Modeling & Analytics – Tools to analyze past shipments and compare agreements for cost savings.
• Self-Service Options – Allowing other departments or external prospects to access rate requests directly, reducing unnecessary calls for inbound freight pricing.

The Challenges Ahead

The catch is that most good rate engines today are either expensive & unreliable or restricted to use within TMS platforms. To access them, the entire TMS platform must be implemented.

It’s time to evolve the heart of the TMS and bring a better rating solution to the industry.

Learn More

Interested in learning more about the evolution of rating? Contact G2Mint today to see how we can transform your rate engine capabilities.