Many businesses utilize truckload shipping to deliver their freight. While this service helps many companies, some freight truck companies underprice themselves.
Negotiating freight rates can increase your profit on each shipment. We will explore some ways you can negotiate better freight rates.
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What Is a Freight Rate?
A freight rate determines the cost of shipping cargo from one destination to another. Businesses must pay a freight rate to receive their goods. Charging a lower freight rate will attract more businesses. However, a low freight rate will hurt your bottom line.
How Do Freight Rates Work?
A few factors determine the freight rate for cargo. Heavier freight will cost more money to ship. The method of transportation also affects freight rates. It costs less to receive shipment via trucks than cargo aircraft. Some businesses pay the extra expense to receive their freight sooner.
Specialized transportation such as a refrigerated freight truck comes with higher price tags. The distance the freight travels also influences freight rates. A long commute requires more gas, labor, and other resources. A further traveling distance will also increase freight rates.
8 Steps for How To Negotiate Freight Rates
Negotiating freight rates will boost your profits. These profits can help you expand your freight shipping business. Follow these steps to negotiate better freight rates.
Step 1: Know Your Operating Cost
You don’t want to ship freight at a loss. Falling into this bad habit can take you out of business. Determine your operating costs before taking new contracts. Once you determine these costs, only accept freight rates higher than operating expenses.
Some freight truck companies initially accommodate low budgets to get on the radar. Appropriate cost-cutting in other areas will lower your operating costs and give you extra flexibility to serve more clients.
Step 2: Pay Attention To Spot Rates
Load boards come with average spot rates. These spot rates represent the priced quote. You can immediately get clients at the spot rate without any negotiations. However, if the spot rate is too low, you will need to negotiate.
Freight truck companies can find spot rates across particular loads and loads as a whole. If the spot rate for a particular load falls below average, try to negotiate a better rate. Contact a freight broker to see if they can arrange a better deal.
Freight truck companies frequently correspond with freight brokers. Some company owners become brokers to save the fees. Other companies hire a freight broker. You can learn how to become a freight broker to expand your income potential.
Step 3: Understand the Load-to-Truck Ratio
Your freight company has limited space on its trucks. The load-to-truck ratio measures how loads compare to the truck supply. If you receive many load requests but have few available trucks, you can negotiate higher rates.
Review the number of trucks posted for the lane you want. This data will reveal how the supply of trucks connects with load demand. Many trucks and a small number of load requests will give you less room to negotiate.
Step 4: Consider Drop-Off Location
Drop-off locations influence prices. Some states come at higher costs than others. Freight shipping carriers receive different rates coming into an area versus coming out of that area. If a drop-off location comes with higher costs, price those costs into your freight rates.
These costs can put operating expenses above the proceeds from freight shipping. Pricing drop-off locations into your rates may help you generate a profit.
Step 5: Mark the Load Time
The load time plays a significant role in freight rates. Brokers want to fill loads that have remained unfilled for too long. You will have an easier time negotiating with these freight brokers.
If the loads get picked up soon, you can negotiate a better rate. Brokers can decide to accommodate or miss out on extra profits. Something is better than nothing.
Truck drivers have limits on their hours of service. A closer destination works in your favor for negotiating freight rates.
Step 6: Ask About Fees
Freight shipping carriers come across many fees. These fees can range from tolls, special permits, and lumber fees.
Some lanes and freight cost more than others. Factor these fees into your freight rates to protect profits.
Step 7: Don’t Be Afraid To Say No
Not all brokers will pay a fair price. During these instances, you must walk away. Freight shipping at a loss will force you out of business. Rejecting offers allows you to focus on fair offers from other brokers.
Some rejected brokers may come back with a better offer. If they walk away and come back later, they’ll know you’re not afraid to reject low offers.
Step 8: Obtain A Contract
Before conducting any freight shipping, make sure you obtain a signed freight contract. You can refer back to this document in case issues arise. A contract obligates both parties to the terms.
Get a signed Rate Confirmation to complement the freight contract.
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Negotiating freight rates for your business will increase your profits. Higher freight rates keep trucking companies in business and allow them to expand.
FAQ
A good freight rate allows your revenue to exceed operating costs.
The current freight rate is $2.93 per mile.
Freight negotiation helps you secure a better freight rate per mile. These negotiations account for various factors, like freight type, timing, and fees.
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