Alastair Peters

 Response to XXXXX. Background: A consultation request was issued by XXXX to which Mr. Alastair Peters from the NCJ Group responded. The consultation was for information regarding rebate rates of Freight forwarders and industry standards. After a telephonic discussion it was agreed that Mr. Peters would complete the consultation for Beroe Inc and submit a recommendation report. This report will answer the 6 questions posed by XXXX and be submitted by 3pm (IST) on 15 April 2019 at a total cost of $150 including XXXX Fee. Definitions: A freight rebate is an amount paid back to clients by a carrier or freight forwarder as part of an agreement between the two parties. It is understood that rebates are illegal in the USA and the client (XXXX) exempts the NCJ group and all it’s associates from any liability that may arise from the this report or any actions taken hereafter. Furthermore it is understood that this report is confidential and the contents may not be disclosed by the client or the consultant and their respective companies or any associate of the companies, without prior permission. Both parties agree that the recommendations in this report are subjective and therefore no liability (or any other) claim may be lodged against either party for any reason whatsoever. It is also agreed that the SOW (scope of work) covers the six questions asked by XXXX and the response by Mr. Peters. Any additional work will be set up as a separate project and billed accordingly as per any future agreements between the parties. Question 1: Do you have benchmark-data for the logistics category which includes current & successfully implemented rebate models? There are generally 3 standard models for rebates, the basis for these models are shown below: 1. The rebate based on Commission: a. This is a rebate model that is based commission that forwarders receive from carriers. b. The average commission for ocean freight is 3%- 5% and for airfreight is 10%. 2. The rebate based on Total Value: a. This rebate model is based on the currency value of the shipments. b. It is important to note that this rebate is based on full duty value. 3. Long Term agreements: a. The long term agreement rebate model is one that has a fixed rebate percentage for a period of time. b. The contract can dictate either a long term fixed rebate percentage or a scenario where the percentage is negotiated at a number of points during the contract period. Please note the following: I. Rebates are usually deferred; this means that a carries/ freight forwarder provides a refund as part of the totals price, if a client agrees to send all their shipments with that carrier/ freight forwarder for a certain period of time. The client would the receive the rebate after the shipment or as per the contract. II. Deferred rebate is different from the rebate that you get for upfront payment. III. To receive a rebate the client (shipper) must agree to send all their shipments with that specific carrier/ freight forwarder for a certain period of time, the industry standard is usually 6 months. IV. The extent of the rebate must be based on full duty. V. The rebate that a client receives is usually a percentage of the commission. VI. Please see the rest of this report for Benchmarks/ Industry standards. Question 2: What is the best in Class rebates based on NFR (Net forwarding Revenue)? Based on the telephonic discussion with Mr. Narayan and the revelation that this project is specific to North America, the achievable rebate rate will differ a little bit compared to the rest of the world. Due to the fact that developing countries base value on service, relationship and volume over price, I would suggest the following: If the values indicated are in USD then the best model to base you rebates would be a combination of Total value and Long Term agreements. Short term (6-12 months) and multi-year contracts have been successfully concluded on a sliding scale basis for rebates. This means that the rebate increases with the length and/ or value of the contract. Please see below my suggested sliding scale: Total Value Rebate % Agreement Term Re- Negotiation Period $10mil- $14 Mil 0.75% 6-12 Months 6 Months $14mil- $18mil 1.00% Approx.18 Months 6 Months $18mil- $22mil 1.50% Approx. 24 Months 12 Months $22mil- $26mil 2.00% 24-36 Months 12 Months $26mil + 2.50% 24-36 Months 12 Months The above info is based on previously agreements that have been successfully negotiated and concluded by myself. Due to confidentiality reasons I can not release any further details. Please note: I. The above is a recommendation based on an estimation and can not be used as a fixed figure. II. This represents only one scenario of the available models. Question 3: What are the typical % range for rebates offered on Net forwarding revenue by freight forwarders? In my response to the first question I mentioned that most rebates from freight forwarders are based on the commission that they receive from carriers. A portion of this commission is given to the client in the form of a rebate. The commission for ocean freight is 3-5% of the total value and for airfreight it is 10% of the total value. Taking this into consideration the table in Question 2 can be used. Please note the following: 1. The rebate is basically a discount on the total value of the shipment and must be seen as such during negotiation. 2. The length of contract and the rebate should be directly proportional; so this means 0.5%- 1.0% for a 6-12 month contract and 1.0% - 2.0% for a 12-24 month contract. NB: These are industry standards only, I have negotiated 2.5% for a 6 month contract in the past and up 4% for a 24 month contract. In fact the best negotiators will find out what commission the forwarder is getting from the carrier and negotiate a rebate that is up 25% of the commission. Question 4: What are the average % rebate for the revenues by spend range, 5-10mil, 10-20mil, 20mil and more? Revenue Value Rebate % $5mil- $10 Mil 0.25%-0.5% $10mil- $20mil 0.75%-1.5% $20mil+ 1.5%- 2.5% Again this is just a general standard, good negotiators will be able to get a higher rebate percentage from the freight forwarder using the right negotiation techniques. Question 5: What is the % of increment for rebates on additional spend? This will be on a sliding scale basis, so the greater the value goes over the threshold the higher the rebate should be. The contract/ agreement must have a clause accommodating the rebate for additional spend. This must be over and above the estimated spend and the rebate % for that estimated spend. There is no standard or fixed increment, I suggest that the increase in rebate % increase by 0.25%- 0.5% for every $2mil additional spend. Question 6: How often is the rebate % negotiated- annually? This is dependent on two factors: The length of contract and The extent of rebate. The contract/ agreement should guide you on this. If it was me, I would have a clause that allows for renegotiation every 6 months. Conclusion: Taking everything into consideration it can be concluded that the best possible rebate can be obtained by a professional negotiator or procurement specialist that signs a Service Level Agreement with the freight forwarder. The agreement must take into account Government subsidies, Commission rates, Length of contract, the extent of the rebate, inbound and outbound logistics planning, consolidated shipment planning, consignment stock planning, geographic category segregation, market competition, TCO analysis and most importantly customer/end user satisfaction. With the right strategy and sustainable negotiation Beroe Inc can achieve a rebate rate of 25% of the commission amount that a freight forwarder receives from the carrier. Digitally signed: Mr. Alastair Peters12 April 2019