How to Negotiate Freight Rates Like a Pro
by Troy Searle, 24 October 2022
Unless you’re the one-in-a-billion with your own fully functional private fleet, if you’re in the transportation industry then you’re going to need to buy space on another company’s train, boat, or plane at some point or another.
We’ve put together this article to help you navigate freight rates (and the intimidating process of negotiating them). Read on to learn some top preparation tips and a quick list of the main do’s and don’ts of the process.
What Are Freight Rates?
The term freight collect means that the freight charges are billed to the consignee or the person receiving the shipment. The consignor, or the person shipping the goods, is not responsible for paying the freight charges. Instead, payment terms are negotiated between the two companies and reflected in the purchase order or shipping document.
The opposite of freight collect is freight pre-paid. In this payment term, the consignor is responsible for freight charges, and the costs are included in the price of the goods.
Typically, freight collect can also benefit shippers by controlling their shipping schedule and improving cash flow as payments are received after goods delivery instead of before.
The biggest lovers of freight collect are often large volume businesses and shipments to different states or countries.
Prepare For Your Negotiation
Preparation is key to a successful negotiation. There are a number of key figures that you need to know and questions you need to consider in order to determine what is and isn’t an acceptable rate. These might include:
▶️ How strong is the carrier’s performance?
▶️ How does this carrier’s rate compare to competitors and previous partners?
▶️ How much tonnage do I need this carrier to ship per week / month / year?
▶️ Does my cargo require special handling or considerations?
On the other hand, it’s important to consider the factors that are influencing the rate you may be offered, and the constraints placed upon carriers. Consider factors such as their operating costs, labour costs, and size and capabilities. This is useful for determining what rates are reasonable vs. unreasonable when compared to their operating costs.
This level of understanding will help you to successfully navigate the negotiation.
The Dos and Don’ts of Negotiating Freight Rates
Once you’re in the room or on the call, there are a couple of things it’s wise to remember while you’re negotiating. We’ve popped them into a list down below:
Do: Get it in Writing
The whole purpose of negotiating is to eventually sign a contract that both parties agree on. However, in the heat of the moment many people can forget to get their agreement in writing. Too many times, one party either misremembers or forgets elements of a verbal contract or agreement, or, more insidiously, ‘remembers’ the terms differently for personal gain. In general, verbal contracts just aren’t a solid legal record, and you can avoid a lot of trouble by getting things in writing at the end of a productive negotiation session.
Don’t: Go in Unprepared
Going into a negotiation without the key information you need is a sure-fire way to be ripped off by the other party and end up paying far more than you need to. Most of the work of negotiation happens in the preparation stage, when you need to figure out your bottom line. Knowing your operating costs and the amount you can realistically spend on freight rates are key figures that you need to take into consideration as you negotiate.
Do: Be ready to Walk Away
This is possibly the hardest tip, but is also one of the most important. Sometimes a negotiation just isn’t going to work, and there isn’t a middle ground on which both parties can agree. The best thing to do here is simply walk away from the negotiation.
Remember, the other party has a stake in making it difficult for you to say ‘no’ to plans that benefit them. We can often feel a great deal of pressure to agree to terms we aren’t quite on board with, particularly if we’ve been negotiating for a long time or have worked with the other party in the past. Maybe you’re even desperate to get a load on the road or in the air as quickly as possible.
The pressure and intimidation plays on our human instinct to be a mediator and make the other person happy, but resisting that urge and simply saying ‘no’ is far more powerful. In our experience, it often has one of two effects: you either avoid a bad deal entirely, or (hopefully) an extra perk suddenly appears to sweeten the deal.
Don’t: Use Miles As Your Only Metric
Although almost everything in logistics is calculated in terms of rate per mile, looking at miles alone won’t give you the full picture of what is and isn’t an acceptable rate. Remember that there are a number of hidden costs associated with freight, such as deadhead miles when delivering to remote locations, and make a list of all the contributing factors to your rate.
Do: Prioritise the relationship
When you negotiate freight rates, you’re either beginning or continuing a relationship with a company that could add a lot of value to your operations and supply chain. Good relationships throughout the supply chain pay off over time, and you want to keep things productive and cordial between you and the other party.
The best contracts are those that both parties agree to without reservation, and it’s also good to be open to reviewing or renegotiating your terms as the relationship develops further. Staying on good terms with a carrier can mean prioritisation or greater discounts down the line, so it pays to remember that negotiation is where a relationship begins rather than ends.
Ready to Negotiate Freight Rates?
We hope you can use these tips to have a successful and mutually beneficial freight rate negotiation. Contact our friendly team if you have any questions or if you want to learn more about how freight rates are calculated and negotiated.