Negotiating freight rates can seem like a daunting task, especially for those new to the shipping industry. Rates fluctuate frequently based on market conditions, and carriers hold much of the leverage. However, with the right strategies and preparation, shippers and freight forwarders can still negotiate favorable pricing. This guide covers tips and best practices for negotiating freight rates as a shipper, carrier, or freight forwarder.
Do Your Homework on Prevailing Market Rates
Before entering any freight rate negotiation, research current market pricing in your lanes. There are several free and paid resources to look up average rates based on details like equipment type, mileage, fuel costs, etc. Some good rate benchmarking tools include DAT RateView, Truckstop.com Rate Index, Cass Information Systems, and the spot market indexes from online freight boards.
Having a strong grasp of rate ranges gives you a leg up in rate talks. You can anchor negotiations around market rates and spot trends. It also helps identify if a quote comes in unusually high or low compared to norms. Go into negotiations informed, not blind.
Leverage Competition Without Playing Carriers Against Each Other
Healthy competition between carriers typically produces better freight rates. Request rates from multiple providers to create options. Just avoid aggressively pitting carriers against each other in a “race to the bottom.” This tactic can breed resentment and hurt long-term relationships.
Seed competition by sharing your benchmark rate research as a fair market rate target. Ask carriers to provide their best offer based on your route details and volume. Evaluating multiple bids side-by-side incentivizes competitive pricing while letting carriers retain control over their rates.
Focus on Value Over Price
Resist making negotiations purely about price. Carriers rightfully aim for freight rates that cover their operating costs and margins. Instead, sell the overall value of your freight. Emphasize benefits like dense volumes, high on-time service compliance, faster loading/unloading, and consistent weekly flows. These perks reduce overhead costs and increase carrier productivity.
Back up your claims with metrics and past performance data. For example, guaranteeing loads every week, even in down cycles, can warrant a discount from carriers looking for dependable volumes. Offering extended payment terms can also sweeten the deal at no real cash flow cost to you.
Build Leverage Through Volume Commitments
Guaranteed freight volume strengthens your negotiating position. Carriers prefer predictable, steady shipments to fill their networks. In exchange for volume guarantees, request discounts below normal market rates. Extend rate lock-ins for 6-12 months to provide revenue stability to carriers.
Without large individual shipments, collaborate with other companies shipping in the same lanes. Aggregating volumes as a shipping consortium cuts costs through higher economies of scale. Smaller shippers can share space on FTL truckload shipments at LTL rates. Make carriers “shippers of choice” for Dense, frequent freight channels.
Have Back-Up Routing Options
Finding alternative routes and modes prevents you from being “held hostage” by any single carrier. Even if your incumbent carrier provides good service, regularly test the waters with competitors. Solicit bids for new providers occasionally to gauge market pricing.
Know your break-even logistics costs for using intermodal rail, shipping to/from different locations, using different ports, etc. Understand how rate changes impact your total landed costs. Having flexible shipping plans strengthens your leverage in rate talks.
Consider Contractual Rate Adjuster Provisions
Freight rates fluctuate, so fixed contracts over 6+ months can become outdated. Negotiate periodic rate reviews and “repricing” mechanisms upfront in contracts. Common adjusters include fuel surcharges indexed to diesel costs and rate reviews if spot market swings exceed +/- 5%.
Building in repricing flexibility—both upward and downward—keeps rates aligned with market conditions. It offers peace of mind to both shippers and carriers unwilling to lock in fixed contracts for extended periods. Keep terms equitable for both parties.
Offer Higher Rates For Guaranteed Capacity
Carriers prioritize shippers paying higher margins, especially when capacity tightens. Be open to paying 10-15% above market rates for guaranteed capacity even during peaks. Offering peak period or “hurricane” rates helps you avoid shipment delays when the spot market heats up.
Consider contract clauses like Minimum Volume Commitments (MVCs) where you pay for unused allocated capacity. Essentially, reserve carrier space at an agreed-upon rate. While costly, MVCs provide volume guarantees for carriers’ value. It contractually ensures your shipments move during crunch times.
Opt For Customer-Centric Carriers
Partner with carriers that prioritize win-win relationships over extracting every cent per mile. Vet carriers thoroughly on ethics, safety records, service levels, etc. before accepting low-cost bids that seem too good to be true.
Carriers fixated solely on price often cut critical corners that drive up long-run costs through problems like cargo damage, late deliveries, and compliance fines. The cheapest route is rarely the most cost-effective option when factoring in risks and hidden costs.
Simplify Pricing Structures
Reject overly complex pricing with unclear fees, accessorials, and surcharges layered in. Simpler pricing promotes transparency and makes cost comparisons easy. All-inclusive pricing eliminates surprise surcharges on invoices.
Push carriers to quote an all-in flat rate with guaranteed capacity. Request they bake-in fees like fuel, detention, tolls, and terminal handling. Removing variable surcharges and accessorials simplifies billing and forecasts. Clarity and predictability benefit both shippers and carriers.
Sweeten The Deal With Longer Commitments
Extending contract terms offers carriers guaranteed volumes for longer periods. In return for multi-year contracts, negotiate discounts below spot market rates. You gain supply chain stability while carriers secure predictable revenues beyond short-term spot market volatility.
Aim for incremental rate reductions with each year committed, such as a 3% discount off the market for a 1-year contract, 5% off for 2 years, and 7% off for 3 years. Offering longer terms signals a willingness to form strategic partnerships with carriers.
Monitor Performance Against Contract Terms
Track carrier billing against negotiated contracts to ensure compliance. Audit invoices monthly and keep organized records of agreed rates by lane. Watch for unexpected fees or rate hikes not aligned with contracts.
Enforcing contract compliance maintains integrity in the negotiating process. Follow up promptly on billing errors and resolve them through open communication rather than immediate escalation. Handled well, it strengthens relationships.
Look Beyond Rates To Reduce Total Logistics Costs
Rather than the absolute lowest freight rates, focus negotiations on the total lowest costs. Factors like optimizing ship sizes, improving warehouse workflows, staging inventory strategically, and pooling orders can lower overall supply chain costs.
For example, carriers may offer discounts for shipments that better utilize cube capacity. Slight changes to packaging sizes or pallet configurations can drive savings exceeding those from rate negotiations alone. Think creatively beyond purely rates.
Conclusion
Negotiating competitive freight rates requires knowledge, preparation, flexibility, and relationship building. Avoid adversarial stances and seek equitable terms that adequately compensate carriers while controlling costs. Mastering negotiations takes time and practice. Patience and persistence pay off. Leverage available technology, data, and industry expertise to set fair baseline rates. With the right approach, shippers and carriers can develop partnerships that provide long-term value for both parties.
Sunil Vaishnav
Sunil Vaishnav, at just 25 years old, is a remarkable author at Apkdragon, where he shares his profound insights into the complex world of shipping, logistics, freight, and supply chain management. With five years of industry experience under his belt.