Anyone in the field of logistics knows that little else is as important as freight rates. There are countless facets to the industry, including your equipment, your employees, your customers, your relationships, and so on. Yet none of it matters if nobody is making money.
As a carrier, it can be intimidating trying to find profitable freight. You might be even more intimidated at the prospect of asking a broker or shipper for more money. Nevertheless, this is one of the must-have skills for any carrier in this industry.
Below, I'm going to take you through a list of do's and don'ts for negotiating rates. This guide will give you four of the most important baselines for steps to take to negotiate rates. Then, I'll provide four things you absolutely should not do when negotiating rates. By the end, you'll feel more confident about your first steps moving forward.
I'd like to start with four easy pieces for what you should do when negotiating rates. There's no complicated secret formula to this. What you'll find below is a theme of being prepared and informed. Couple that with confidence, and you'll find success in no time. Let's get started!
You can't negotiate rates effectively if you don't know the math to engineer profitability. When we talk about operating costs, we're talking about know how much money it takes to run your business. As a carrier, that means to pay for fuel, maintenance, and your driver at a minimum. You don't want to accept freight that will leave your company taking a loss.
However, one important factor to consider is customer satisfaction. If you realize a shipper or broker is going to potentially have a lot of freight that interests you, it can be worth making a short-term compromise. Perhaps you take a loss on one load to prove you can perform. Then, that broker can learn to trust you. Once you've proved you can deliver freight on time and in good condition, you can begin to request more money for your loads.
Know your operating costs. Know if you can afford to take that approach or not. Understand what rate is necessary before entering a negotiation, and then stick with it.
This tip is, in my experience, the one that freight negotiators struggle with the most. It's easy to find yourself in a couple of different positions where saying "no" is difficult. One such position may be that you simply want to book your loads as quickly as possible. Another is that you may feel desperate, willing to take whatever's available in order to just get a truck moving. An idle truck and driver can cost you a tremendous amount of money.
I understand the temptation to be quick to pull the trigger. However, even with all of that in mind, you can't be afraid to say "no" when you have to.
Why? One reason is in accordance with that mentioned above—knowing your operating costs and not wanting to take a loss. You shouldn't accept a load if the loss is more than you can afford to take.
But it's not only that. Often, shippers are willing to pay more in order to get their freight moving to meet customer expectations. The phrase "playing hardball" applies here.
So, what's the benefit of just saying "no"?
Rather than continually going back and forth on price, sometimes the most effective strategy to negotiate is to flat-out say "no." Granted, it can be a gamble. But if the broker or shipper is adamantly stuck at a price that doesn't make sense for you, or is borderline, then being firm in your denial can lead them to "blink," so to speak.
All of a sudden, perhaps an extra $25 or $50 appears. Now the load is tenable for you. It sounds simple, and it sounds risky. But I can personally attest that it works more often than it doesn't.
Here's another tip that sounds obvious. What is the rate covering?
Shipment of the freight is an easy and obvious answer. Yet there are often many other costs associated in a transport beyond the cargo and the locations. Make sure you have your route planned ahead of time, as well all the necessary information from the shipper or broker.
Here are a few examples of charges you need to be on the lookout for:
Finally, make sure you get everything about your load in writing. There should be broker and carrier agreements. You may also have some sort of contract negotiation, though that isn't always included. Finally, you need a rate confirmation. A document stating the agreed-on rate for the shipment is absolutely imperative. The shipper or broker is not required to pay you without signed freight contracts.
Now that we have the basics of what you should do, let's look at what you shouldn't do.
Everything in logistics, from freight pay to driver pay, is dictated in terms of rate per mile. However, this is in important pitfall to avoid when determining what rate is acceptable for freight. There are a couple of reasons for this.
First, you must consider what kind of freight is available coming back out of wherever you're delivering to. Rates coming back may not be as good as going in. It may be necessary to front load the first shipment to compensate for what the second shipment will be.
Secondly, you must consider possible deadhead miles incorporated by delivering to more remote locations. The rate delivering to the middle of nowhere might be great, but if there's no freight within 300 miles coming back, you now have to consider those miles in your original rate.
This isn't to say you shouldn't value the service you can provide. However, be aware of the availability of freight coming out of the same location that you are. If you see 10 different loads all coming out of the same location, then your leverage to negotiate your rate is significantly smaller. There will be more competition from other carriers also looking to take those loads. Sometimes, finding a truck isn't an issue for a broker. If the load doesn't pay what you need it to, then you may be better off looking elsewhere.
This is another failure I see extremely frequently in the industry. When there's intense competition from other carriers for well-priced freight, it's easy to feel the need to stand out to win the freight. Often I see carriers using the promise of even faster pickup or delivery than any other carrier might provide.
The problem here is that often these promises leave carriers in impossible situations. You've offered to pick up or deliver in a time frame that, for one, may not even be completely legal. Or, alternatively, it can happen only if literally everything goes perfectly.
If there's a lesson to be learned about logistics, it's this: Nothing ever goes perfectly. Don't let yourself be put into a position to stain your reputation and remove all negotiating power for future loads.
Finally, knowledge is everything. You might feel like you should just take what's given and figure it out as you go. I encourage you to ask as many questions as possible and as is necessary. You should know everything you need to know about a shipment before you accept it. Here are some examples:
I could go on and on, but you get the idea. You should ask questions.
At the end of the day, negotiating rates is like anything else in logistics. It may sound intimidating at first, much like the influx of new technology into the industry. Yet truly all it requires is for you to be informed, prepared, and knowledgeable. I'd be remiss not to also include confident. Your attitude will drive your success or failure in any negotiation.
Follow the easy tips of this guide, and you'll find success in no time.
This post was written by Matthew Zandstra. Matt has been working in transportation and logistics dispatch for the past six years, both as a broker and direct to drivers. He’s familiar with various facets of relationships, technical systems, pricing mechanics, and commodities.