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.
To help you with cost reduction, 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 when working with freight forwarders and a quick list of do’s and don’ts of the process.
What are Freight Rates?
As the name implies, these are charges a freight forwarder bills to a consignee or anyone who receives a parcel. Freight costs vary, typically depending on the mode of transportation, type of package, weight of the cargo, and of course, the distance travelled.
Market conditions also influence freight rates. Geopolitical conditions, transportation costs and fuel prices, insurance premiums, demand and market trends, there are different factors that drive up the total cost of your shipment.
Large volume carriers typically implement freight collect. This allows them to provide competitive rates while maintaining cash flow and control over shipping schedules. Basically, freight collect payments are billed directly to the person who collects the shipment at the end.
The party that ships the goods is in charge with negotiating freight rates before the shipment is sent out.
The Secret to Successful Freight Negotiation? Preparation.
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.
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 to remember while you’re negotiating. We’ve popped them into a list down below:
Do: Get payment terms 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 people can forget to get their agreement in writing.
Too many times, one party 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.
Pro tip: Keep digital documents of your agreement. It’s easier to organise, reduces the risk of loss, and easy to access when you’re comparing contract rates.
Don’t: Go in unprepared
This is a critical factor worth mentioning again!
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.
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 when you’re unable to negotiate lower rates.
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 and could lead to better cost savings.
Don’t: Overlook hidden fees
We know that the shipping process is not cut and dry. So, take a moment to analyse the fine print and determine any hidden fees and other factors that may be driving up shipping costs.
Many make the honest mistake of overlooking these costs, which include accessorial charges, accrued charges from prolonged detention, and fuel surcharges.
To ensure that you’re operating within budget, ask for a detailed cost breakdown that includes all surcharges and other potential fees.
Do: Compare multiple carriers and shipping costs
It goes without saying that carriers come with different pricing structures, packages, and additional services. Comparing carriers helps you identify a cost-effective solution that aligns with your budget and current market rates. It also allows you to assess if your chosen carrier meets your service level expectations.
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 building relationships with a freight forwarder that could add value to your operations.
Strong 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 discounted rates down the line.
Negotiate Freight Rates Like a Pro
We hope you can use these tips to have a successful and mutually beneficial freight rate negotiation. Getting the best freight rates is possible and you don’t always have to settle with costly services.
Another tip worth noting is to leverage a system that integrates with multiple carriers around your area.
Luckily, TransVirtual can help you with that. Contact our friendly team if you have any more questions about freight rates, freight negotiations, or our products and services in general.
