Freight agents work with shippers and carriers to arrange the transportation of freight. A big part of that process is freight rate negotiation. The ultimate goal of this negotiation is to settle on the best rate possible for all parties involved. Agents looking to create agreements that benefit both their company and their customers can take several proactive steps to stay on top of the negotiating game. But first, they need to understand what defines a freight rate.
Freight Rates Explained
Rates are the price for a load to be shipped from one location and delivered to another. The rate varies based on the type and weight of the load being transported, the service level, the distance traveled, and the type of delivery. It’s negotiated as part of the contract between a freight broker and a carrier.
Several factors determine a freight rate. The first thing you should consider is supply and demand. Supply refers to the amount of equipment available to move freight. While supply levels usually pertain to trucks, they can also include the number of available drivers. When the supply is lower, the freight rate will increase. Demand refers to the amount of freight that needs to be shipped. Following the basic rules of economics, rates increase as demand increases. Supply and demand are affected by region, seasons, and the type of equipment required.
A shipment’s urgency, determined by its lead time, also impacts the freight rate. Lead time is the amount of warning you give a carrier about freight needing transportation. Carriers are given more time to plan accordingly when the lead time is longer. Shorter lead times put carriers in a crunch, resulting in higher freight rates. Ultimately, time and money are your best bargaining chips, and shorter lead times can cause you to lose some of that power.
The length of a haul is also reflected in the amount you pay for a shipment. Typically, the longer the haul, the higher the rate. Hauls are divided into five categories: short-haul, mid-haul, tweener, long-haul, and extended-long. Short-hauls and mid-hauls are charged for a whole day of work, while tweeners, long-hauls, and extended-long hauls are charged on a rate-per-mile basis.
Due to the dynamic nature of shipping and logistics, these factors cause freight rates to change constantly. That’s why it’s critical for logistics service providers to monitor the latest market conditions and take them into consideration as they enter the negotiation process.
How To Negotiate Rates
Freight rate negotiation starts with building a relationship with the carrier. The goals and capabilities of the freight broker and carrier should align for the best chance of success.
When approaching a carrier to negotiate a rate, there are a few things you should do to prepare. First, do your research so you can back up your rate request. Coming into a negotiation well-informed about why you’re asking for a specific rate helps you prove to the carrier that your request is valid and reasonable. Second, be aware of your competitors’ rates and routes. These details can help you negotiate your rates and routes more strategically.
When the actual negotiation commences, there are a few best practices you should follow:
- Go into the negotiation with a strategy.
- Start with a bold first offer, and never disclose your budget or limitations.
- Know what you can concede without damaging your position in the negotiation.
- Demonstrate your knowledge and expertise to gain leverage.
- Explain why you are qualified and how a partnership could benefit you both.
- Once you agree on a rate, present the offer in writing and include all relevant details.
In the end, the best result is finding a win-win solution. You want the carrier to leave feeling pleased with what they got from the deal, and you should leave with a rate you can feel confident presenting to the shipper.
The UCW Difference
At UCW Logistics, we use the best technology platforms to ensure reliability, efficiency, and affordability. We aim to give shippers and carriers the best deal possible so all parties can feel happy and satisfied.
Our agents utilize the latest technology to navigate the freight rate negotiation process. These resources allow them to match carriers with business that makes sense. One resource we utilize is FreightWaves SONAR. This platform provides global supply chain data to help logistics service providers like ourselves make better freight predictions. Using SONAR, our agents are able to visualize freight and price movement.
When negotiating rates, we aim to secure loads with the best rates that reflect the current market conditions. SONAR enables us to be more proactive when it comes to making the best rate and carrier decisions.
Here at UCW, we value the power of relationships. We also recognize that technology has given us the tools to excel and make the most of logistics data. Our agents get the opportunity to maximize that data while creating meaningful relationships — and that is what we call the UCW Difference.