Negotiating Freight Rates

The fact of the matter is: most things and life are negotiable. Yet, it would seem as though there are many of us walking through life oblivious to this fact. As a young man still early in my career, the importance and breadth of negotiation has had a huge impact on my thinking. We are put in situations daily where negotiation is a must; which restaurant to go to for lunch with a work colleague, what movie to watch with the family, or who is going to do what chores around the house. Becoming a better negotiator is an important skill to focus on and I have provided a few links to some great articles on how to improve your negotiation skills below. This said however, my focus here is not to tell you how to be a better negotiator, but rather to suggest that you should be mindful of the fact that everything is negotiable when approaching transport rates.

There are a few key areas that I think you should consider when negotiation trucking rates. The first and most obvious is of course your standard freight rates. These are most likely in the form of hundredweight rates (CWT rates) or skid rates. (For a brief description of how hundredweights work check out this article: http://www.duckeringstransport.com/index.php/blogging/111-hundredweight-rates-the-confusion). Most shippers are familiar with this approach and work hard to get rates from different carriers to find the one with the most favorable rate per hundred pounds. In order to do this effectively, it is crucial to understand how your rates work and which weight breaks are most applicable to you. If you ship full loads (FTL), a carriers less than truckload rates (LTL) rates probably have little value to you. On the other hand, if you ship primarily LTL freight in the 2500-3000lb range, the 2M CWT rate is going to be very important to you while a carrier’s minimum charges may have much less relevance. Knowing your freight and the rating style being used may allow you to negotiate better rates in the weight brackets and lanes that matter to you the most.

Now that you have your freight rates dialed in, it is time to focus on the fuel surcharge. Most transport companies have a fuel surcharge that is added to the freight rate to compensate for the cost of fuel. The reason that the fuel surcharge is not simply built into the rate is that the price of fuel has seen major fluctuations, even in time frames as short as a couple weeks. This fuel surcharge is variable and can work to benefit both the carrier and the shipper. When the price of fuel goes down, a proper functioning fuel surcharge decreases and passes savings on to the shipper in the form of a lower total freight cost. When the price of fuel goes up, a proper working fuel surcharge protects the carrier from huge jumps in its fuel expense. In essence, the fuel surcharge works to help the carrier be more competitive in its price. If a transport company includes fuel in its price, it must maintain margin to protect from major spikes in fuel prices; this generally results in a higher average price for the shipper. (The fuel surcharge is explored in greater detail: http://www.duckeringstransport.com/index.php/blogging/120-why-is-there-still-a-fuel-surcharge)

Fuel surcharges are negotiable! As a shipper negotiating your freight rate, it is key that you know what your fuel surcharge is, the formula that is being used to calculate it, and what data will be used to calculate it. Many individuals work hard to get the lowest freight rate and never realize that they are being charged a fuel surcharge that is higher than average. The rates “look good” but the cost may be the same as an individual who has a higher freight rate and a lower fuel surcharge. If the carrier you are working with does not want to reveal their fuel surcharge formula to you, or has no method by which they maintain accountability for the values given, there is always the option to use a third party such as the posted FCA or NTS fuel surcharges (respectively http://www.fca-natc.org/ or http://www.ntscanada.com/CFS.asp).

The last major portion of your freight rate to consider are accessorial charges. You may have the best freight rate possible, reasonable fuel surcharges with third party accountability, but you get nailed on excessive accessorial charges. The idea behind accessorial charges is that you should only have to pay for the services you use. While there is some merit to this argument, it really depends on if you are a heavy user of accessorial services. Common accessorial charges include things like power tailgate usage, heated trailer requirements, appointment charges, and other similar services. Each company typically sets it’s own accessorial charges and decides which items to include in its overall rate and which to charge additionally. Knowing which accessorial charges are most applicable to you allows you to negotiate more favorable rates on ones that really matter and worry less about the ones you rarely ever use. Being aware of and negotiating accessorial charges also aids in ensuring you are not surprised by extra charges when you see your freight bill at the end of the month.

Knowing the three major areas to focus on when negotiating freight rates is key to ensuring that you get the best numbers possible to successfully move your goods from one location to another. That said, the old adage still remains – you get what you pay for – and in some regards this is certainly true. Negotiation on each of these three areas of freight rates can create great value for both the shipper and the carrier.


If you are interested in tips on becoming a better negotiator in general, check out the links below!

http://www.brodow.com/Articles/NegotiatingTips.html

http://www.forbes.com/sites/jennagoudreau/2012/10/08/the-secret-art-of-negotiating-take-your-ego-off-the-table/#57b969947224

http://lifehacker.com/five-tips-to-negotiate-better-with-just-about-anyone-493106085

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