Freight rate negotiation is an aspect of supply chain management that can make or break the business if you’re working with tight margins. From getting the best deal from a supplier to maximizing your profits with buyers, freight rate negotiation can have a huge impact on businesses' bottom line.
For truckers, freight negotiation is an area heavily affected by rising fuel prices, which makes efficient freight rate negotiation strategies a real necessity as expenditure increases from all angles.
This article will explore five effective strategies truckers can employ to rebalance the income-to-expenditure ratio and secure better freight rates in this dynamic industry.
Now, let's look at the five core freight rate negotiation strategies you can implement for your business.
7 Strategies for Negotiating Better Freight Rates
1. Calculate Cost Per Mile
When negotiating, brokers will naturally want to counteract your offer with a lower rate. So it’s important to have data to hand that makes it easier to negotiate. Calculating your cost per mile is a simple way to gather such data. It’s also one of the most crucial financial calculations for your trucking business.
Knowing your cost per mile helps you make better decisions to ensure you turn a profit. By having a better understanding of how much it costs to run your truck or fleet, you’ll have a clearer idea of spending patterns and know where to cut costs.
To calculate cost per mile, divide your total expenses by total miles. This is where the data comes in.
Using historical data, you can identify fixed, variable, and salary costs to find your total expenses. Fixed payments might include monthly or annual fees like permits, parking, and insurance.
Variable payments often include maintenance, tyres, and broker fees as well as trip-specific expenses, such as fuel, food, and lodging. Finally, include any salary expenses you pay yourself or employees if you operate a fleet. This might include wages, benefits, and taxes.
You can also use data from your truck’s odometer to calculate your total miles in a given month. To do this, subtract the odometer reading at the beginning of the month from the reading at the end of the month
2. Gain Insights Into Current Industry Freight Standards
Understanding the current market and industry standards is crucial for effective negotiation. This understanding can be acquired via the following measures:
- Studying industry trends: Market conditions can change at any time, having a knock-on effect on freight rates. Factors like seasonality and supply and demand can cause prices to fluctuate. Keep an eye on innovations in your industry, current market benchmarks, and competitor rates.
You can do this by conducting a competitor analysis, reading publications specific to your sector, and by using online platforms like FreightWaves that monitor the market in real time.
- Getting market rates: To secure fair and competitive pricing and gain an advantage in negotiations, it’s crucial to understand market rates and benchmarks. One of the best ways to keep your finger on the pulse is to subscribe to industry newsletters and publications that share regular updates and insights, includingSupply Chain Dive , Gartner for Supply Chain, and Supply Chain Digest. Other resources you can tap into include surveys with customers and service providers, benchmarking websites and tools like Transporeon and PwC, and load boards, which often feature market rates and negotiation tools.
- Watching load times: Has a broker been working one load for a long time? Is there a quick turn-around time? If so, you may be able to negotiate a better rate. By watching load times, you can spot opportunities for better bargaining, such as older loads and ones with a short pick-up time. You can also calculate whether specific dock hours will require you to work after-hours or during peak traffic, giving you even greater bargaining power with the broker. You can monitor load times using load boards like Truckstop or TruckerLoads.
- Understanding the loads-to-trucks ratio: Given your trucking lane, it’s important to check the number of trucks posted for that lane before you begin negotiations. Supply and demand principles say that if there are more trucks than loads, rates are likely to be low. However, if there are lots of loads and few trucks for your lane, the high demand gives you more wiggle room to negotiate. Again, a comprehensive load board or app should have the features you need to find the number of trucks posted for the lane you want. Truckstop Go , in particular, allows you to filter searches by lane to find loads at the right rate.
- Understanding external influences: Keep in mind that various outside factors can influence freight rates, such as fuel prices, demand, and global economic conditions. For example, extreme weather events can disrupt the supply chain, having a knock-on effect on transportation demand. Seasonal events like Thanksgiving or Chinese New Year can increase rates as suppliers rush to shift stock before the long holiday. And ofcourse, sanctions as a result of war can impact fuel prices, as evidenced by the Russia-Ukraine conflict.
Once this knowledge has been gathered, businesses can negotiate from a place of realism and confidence based on real-world data instead of speculation.
As part of your research, you might also consider communication solutions like cloud PBX for small business purposes.
PBX stands for Private Branch Exchange. Cloud PBX systems are essentially a business phone system operated in the cloud rather than in a physical office location. This is ideal for truckers and fleet operators who are constantly on the road.
You’ll have a centralized and efficient method to communicate with brokers, other drivers in your fleet, and the rest of your supply chain no matter where you are.
3. Know Your Competition
As we mentioned, knowing your competition is crucial. It places you in a better position for rate negotiation. But it also helps to gauge the overall success of your business, current strengths, and future opportunities.
More than just knowing who your competitors are though, you need to understand what their load volumes are, their preferred lanes, and any gaps in their routes. This will help you negotiate rates, particularly if your competitors are shipping with the same carrier.
Outside of rates, pay attention to other factors such as local haulage and additional charges. If you can offer something competitors aren’t, it’ll give you leverage when negotiating pricing.
If you are an owner-operator, you must know how to get freight contracts.
To identify your competitors, their volumes, and main routes, follow these steps:
- A great place to start is by conducting a simple internet search to identify the most popular (or best marketed) truckers in your industry. You can also search local business directories and online platforms to find direct competitors in your area.
- Ask current, past, and potential customers which companies they use or have used. This will also offer greater insight into customer satisfaction and competitors’ strengths and weaknesses.
- Use load boards, such as 123Loadboard and Convoy. Look for a board with features that allow you to see real-time updates on tendered loads. This way, you can view up-to-date competitors’ rates and load capacity.
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- Commercial Truck Insurance Rates by State
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- CDLs and Weight Class Guide for Truckers
- 5 Common ELD Mistakes Fleets Make
- How to Survive Long Distance Trucking
- How to Optimize Route Planning for Local/Regional Trucking Companies
- 7 Effective Strategies of Freight Rate Negotiation
4. Build Reliable and Strong Relationships With Freight Providers
Building strong, mutually beneficial relationships with freight providers can open doors to better rates. Trustworthy relationships can lead to more open conversations about pricing and service expectations.
This rapport built over time can help secure lower rates in the long term. So what methods can you use to build beneficial relationships with freight providers?
- Stay consistent: Always provide an accurate load volume to the carrier, deliver on time, and ensure payments aren’t delayed. This shows that you are a reliable shipper, offsets perceived risks from service providers, and can increase your clients' LifeTime Value (LTV).
- Be honest: Transparency is key when it comes to building relationships, so always be honest about loads and timelines. For example, if you can secure a better rate by saying you can deliver by a certain time but know that it’s a stretch, have that discussion first.
If you find that some of your established partners seem to have gone off your radar, then it may be time to consider engaging in a remarketing or retargeting campaign.
A popular marketing tactic, think of this as an advertising method that could win you back previous freight partners. You can reach out to contacts over the phone, by email, or through advertisements, promoting your business’ strengths and highlighting what sets you apart from the competition.
5. Negotiate Discounted Rates With Volume Guarantees
The offer of a volume guarantee to a freight provider can often lead to discounted rates. Freight providers often have fixed costs so they might appreciate the guaranteed business. If a company can promise a certain amount of business to a freight provider, it can usually negotiate lower rates in return.
Working with a partner through guaranteed volumes can also make your business more stable in the future. National Restaurant Association Studies show that contract rates from these long-term customers can help stabilize companies when markets collapse and rates drop.
Using call center VoIP software, you can efficiently manage high-volume communications to help negotiate discounted rates with volume guarantees. When you’re on the road, you can set up an auto attendant to give callers different options while you’re unable to take the call or forward it to your office, so you never miss an important call from a potential partner.
A built-in call log also gives you access to call records, so you can view previous call data throughout the negotiation process and beyond. This enables you to negotiate discounted rates from freight providers at scale, allowing for a broader range of options.
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6. Collaborate With Carriers For Flexible Shipping Arrangements
Being flexible with shipping arrangements can also help reduce your freight rates. If you are willing to go the extra mile for them, they might show you the same flexibility in pricing. This flexibility might involve:
- Being open to longer transit times: If competitors prefer short hauls, opening yourself up to longer routes improves your chances of securing higher rates.
- Consolidating shipments to save costs: By consolidating shipments, you increase the volume of each load, while decreasing the cost per unit. This will give you extra wiggle room in your negotiations as you know you’re already covering key expenses like fuel and the driver’s wage.
- Off-peak delivery times: Carriers, drivers, and freight providers all want to make their transport operations more efficient – and delivering during off-peak hours is a key way to do that. It can reduce wait times at docks, truck idling, and even fuel costs. You may even find that you can significantly reduce transit times and take on additional loads.
This approach to collaboration can lead to cost savings without compromising on the quality of service.
Remember, collaboration and communication go hand-in-hand. You must ensure your target audience understands the services you offer and the flexible approach you can take for each customer. To do this, you can communicate individually with each potential carrier for a more personalized approach.
You can also use your website to showcase your business. Be sure to highlight that you are open to collaborative opportunities and remain flexible to meet the carrier’s needs.
It’s worth investing in a customized domain name and hosting provider to give your business a professional look. Keep your local audience in mind, too. For example, if you operate in the British Indian Ocean Territory, you can acquire a .io domain while US or European businesses can acquire a .us or .eu domain, respectively.
7. Compare Rates and Services From Different Freight Forwarders
Don't settle for the first quote you receive. Reach out to different freight forwarders and carriers to compare rates and services. Some offer lower rates, better service, or extra perks such as commercial truck insurance. You can do this through your load board or by contacting carriers directly.
It's essential to consider all aspects of the service, not just the price, to ensure you're getting the best value for your money.
- Calculate your cost per mile to understand your expenses and identify areas for cost reduction.
- Stay informed about current industry standards and market rates through research and industry publications.
- Know your competition, including their load volumes, preferred lanes, and additional services they offer.
- Build strong relationships with freight providers by being consistent and transparent in your dealings.
- Consider remarketing or retargeting campaigns to win back previous freight partners.
- Negotiate discounted rates by offering volume guarantees to freight providers.
- Use call center VoIP software to efficiently manage high-volume communications during negotiations.
- Collaborate with carriers by being flexible with shipping arrangements, such as longer transit times or consolidating shipments.
- Invest in a professional online presence to showcase your business's flexibility and collaboration opportunities.
- Compare rates and services from different freight forwarders and carriers to ensure you get the best value for your money.