How to negotiate freight rates like a pro
For many trucking professionals, negotiating rates is one of the most challenging parts of the job - but it’s also essential for success. The shipping world can be competitive, and if you don’t develop strong negotiating skills, you could end up taking jobs for subpar rates and even struggling financially.
Luckily, rate negotiation is a skill that anyone can learn. As an owner-operator, you’ll be browsing load boards and working with freight brokers every day to find new shipments, so you’ll have plenty of time to hone your skills and advocate for your own best interests. Here are some of our top tips for negotiating your freight rates like a pro.
1. Understand your operating costs
Before you can start negotiating, you’ll need to have a thorough understanding of your expenses. This will help you determine how much money you need to make in order to keep your business afloat and ultimately turn a profit.
If you don’t understand what your operating costs look like, it will be very difficult to negotiate for the shipping rates you need. You’ll run the risk of taking on jobs only to find out later that they don’t pay enough to cover your expenses.
There are a variety of expenses to think about here, and it’s important to factor all of them into your calculations. In addition to the fuel for each trip, you’ll need to consider variable travel costs like food and lodging, as well as regular repairs and maintenance for your vehicle. Additionally, you’ll need to factor in fixed costs like truck licensing and insurance, as well as salaries you pay your drivers where applicable.
Distilling these expenses down to a cost per mile will help you better negotiate your rates. Once you set a benchmark cost per mile to aim for with every shipment, you’ll be able to easily identify projects from load boards that will meet your requirements. If you do opt to take on a shipment that slots in below your necessary cost per mile, make sure to negotiate for other perks that will help you make up the difference later on.
2. Keep an eye on spot rates to understand the market
Spot rates are rates that shipping clients offer for one-time shipments. A spot rate for a particular load is based on a variety of factors, including current levels of supply and demand, fuel prices, seasonal considerations, and more.
When searching for shipping jobs, you’ll want to keep a close eye on these spot rates. This will give you a good understanding of market trends that you can use as leverage while negotiating.
For example, if spot rates for a specific lane are increasing, you could use that information to negotiate for an increased rate with existing clients. If spot rates are dropping, that might mean you need to focus on a different lane that’s more lucrative.
3. Consider additional fees and costs while negotiating
Some shipments come with hidden costs, and it’s important to understand them and negotiate accordingly to avoid unexpected losses. For example, some routes come with tolls and dock fees. Some types of freight also require special permits. If a load comes with these additional costs, make sure to factor this into your negotiation.
Another hidden expense to consider here is deadhead miles. If you’ll need to drive an empty trailer back after completing the delivery, include that in your negotiation. Ideally, you’ll want to pick up another shipment in the same area as your delivery, but this isn’t always possible.
Many clients will pay a partial rate for deadhead miles, particularly if they’re struggling to find a carrier - but you’ll need to negotiate for it.
4. Use pick-up and drop-off times for leverage
When browsing load boards, be sure to keep an eye on the requested pick-up and drop-off times for each load. If a client is requesting a pick-up or drop-off at difficult hours, you may be able to use those times as leverage to negotiate a higher rate.
Additionally, take a look at how soon the client needs the shipment picked up. The closer you get to their desired pick-up time, the more likely you’ll be able to negotiate a higher rate. At this point, the client desperately needs a carrier, and they may be willing to spend more money to get it.
5. Know when to say no
Saying “no” to a potential client is a tricky part of any business, regardless of what industry you’re in. However, in order to succeed financially as a trucker, you’ll need to determine which loads are worth your time and which ones to let go.
The unfortunate reality is that not all clients are willing to pay fair rates for their shipments. Additionally, the market fluctuates rapidly based on the supply chain, so a shipment that makes sense financially one week might not be financially feasible the next. Saying no to the shipments that aren’t worth it gives you more time and resources to focus on the ones that are.
6. Get a contract in writing
Before your team heads out, be sure to get a signed freight contract in writing detailing all of the terms of the shipment. The document should include your rate confirmation as well as any other key details of the shipment and should be signed by both parties. You’ll need a contract to ensure you get paid and to settle any disputes should they arise.
Negotiations can be tricky, but with some practice, you’ll learn how to handle these tough conversations with ease and get the rates you deserve. Are you looking to streamline your trucking business? Get started with Rose Rocket, the #1 rated TMS.