As an owner-operator, it can be intimidating and overwhelming to learn how to negotiate for a profitable rate. You may have found a load board that meets all of your needs, but if you aren’t getting the best rates on freight, then a good load board or not, you won’t turn much of a profit. Knowing how to negotiate for better freight rates will help you understand the market and increase your revenue.
Understanding how to navigate a load board and make the most of its features is an important first step in getting the best rate and turning a profit. However, knowing the ins and outs of freight broker rate negotiation is just as necessary if you want to increase your bottom line and grow your business.
Transportation and Freight Broker Rate Negotiation
Before we dive into the specifics of how to negotiate transportation and freight rates, it’s beneficial to first understand the costs of freight and how the prices are determined. You can’t properly negotiate for a higher rate if you don’t first understand the factors affecting the freight price.
Freight Cost and Rates
Freight cost refers to the value of the transported goods, and the freight rate refers to the cost incurred to transport the goods. There are a few factors that can affect the freight rate, such as:
- Supply and Demand: If there is a high demand for trucks, rates will go up.
- Contained vs. Loose Cargo: The freight price can change if the transported cargo is in containers or loose.
- Weight or Space: The weight or mass of the goods and the amount of space they take up will affect the rate.
- Distance: The distance traveled from point A to point B to deliver the freight influences the price.
- Location: Running loads through certain areas or lanes will incur a higher rate than others.
- Type of Freight: Hazmat, teams, and refrigerated freights would pay higher rates.
When discussing freight and freight costs, it’s helpful to understand the types of loads you may be hauling. When referring to road transportation rates, there are generally two types of loads:
- LTL (Less Than Truckload): This mode of transportation refers to trucks or carriers transporting the freight of multiple shippers at the same time. It’s a great way for shippers to find savings; however, for carriers, it can be trickier trying to ensure the timing and location of all the deliveries match up. Make sure you know current market rates and that your timelines are not so tight that you run into trouble should you become detained at a location. Knowing detention pay for anyone you run freight for is a must.
- FTL (Full Truckload): A full truckload is just what it sounds like – this is when a carrier is transporting the goods of a single shipper in their trailer. While it is easier to manage the pick-up and drop-off of one shipment, its profitability can vary. Having one load to manage allows you to focus on one set of specific details, and you can negotiate the possibility of finding repeated lanes to haul in.
6 Things to Consider When Negotiating Freight Rates
Now that you’ve learned about the basics of how freight rates work, let’s explore the ins and outs of freight negotiation. These tips will help you understand what to pay attention to and how to present yourself so you can negotiate the best rates possible for your business.
1. Know Your Operating Costs
You wouldn’t step into a boxing ring without first knowing your own strength and what you could handle, would you? You could, but you’d be going in blind. The same goes for negotiating the rate of freight. If you don’t first understand what your own business can handle and what your operating costs are, you won’t know what rates meet your needs. If you accept lower rates than what it costs to run your business, you won’t make any profit.
2. Compare Prices
These days it's easy to access market data on the internet to research what other carriers are charging. Before you begin the negotiation process, do a little digging to find out what the competition is charging. If a broker or shipper can tell that you’re aware of the current market rates among your competition, they will be more likely to make a better offer. Just be mindful not to overlook fair offers and risk ruining a potential long-term relationship. Remember that the best scenario is where everyone wins.
3. Don’t Be Afraid to Say “No”
This might seem like an easy rule to follow, but there are many cases where you might find yourself willing to bend and give in to lower rates. For example:
- If you’re in a hurry to book as many loads as you can
- If you’ve struggled to find something available nearby
- If you want to get something so that you don’t continue to sit idle
In these situations, you might find yourself overlooking what you need to make an actual profit. Though you can lose money with an idle truck as well, it’s important not to get comfortable always giving in. Continually taking loads where the loss is more than you can afford to take will only hurt your business over time.
4. Pay Attention to the Load-to-Truck Ratio
Keep an eye on the number of trucks posted in your area. They are all likely to compete for loads with the best rates. If there are a lot of trucks and not enough loads to go around, this generally drives the rates down for loads in that area. If there are a small number of trucks around your location and a higher number of loads, you most likely will be able to negotiate for better prices.
5. Read the Fine Print
Hidden costs are everywhere. Before you agree on a rate, be sure you aren’t missing anything in the details like hidden fees and charges. A good negotiator knows what to look out for and how to get rid of unnecessary charges. Will there be tolls on the route? A lumper fee for loading or unloading the truck? Will there be a long detention time? Is the fuel surcharge included? It’s important to ask about any of these extra charges or other fees to ensure they are covered in the rate.
6. Get Everything in Writing
Always, always, always make sure you are getting all the details of the load in writing. There should be a broker and carrier agreement or other contract negotiation involved. It’s also crucial to have a signed document stating the agreed-upon rate. Payment is not required if there is no signed contract. An email trail of an accepted load is good, but a signed agreement is a standard policy with good brokerages.
Evolution of the Freight Marketplace
The trucking industry is one of the largest sources of revenue in the country. With an industry this huge, it’s no surprise that new methods and technology are continually evolving to meet demands. As an owner-operator or freight broker, it’s imperative to stay on top of the latest information to evolve with the industry and grow a successful business. Check out our blogs on the benefits of utilizing the map search feature of load boards and digital load board comparisons to further educate yourself on the ins and outs of the trucking industry.
Xpress Technologies has over 40 years of experience in the trucking industry. We’ve harnessed our expertise to create cutting-edge technology, offering a leading freight marketplace that meets your specific needs and preferences.