Negotiating Freight Rates: A Guide for Owner-Operators
As an owner-operator, finding new ways to save costs and increase profits is part of maintaining a sustainable business model. Knowing how to negotiate freight rates is a great way to ensure you are optimizing every dollar spent and not leaving money on the table.
You must be an advocate for your business, emphasizing the ways you provide value and striking mutually beneficial relations with the shippers, brokers and forwarders you work with.
A few key strategies can help you score more favorable rates and protect your bottom line.
11 Strategies for Negotiating Better Freight Rates
Many factors, including market conditions, fuel costs, cargo weight and traveling distance, contribute to the freight rates associated with transporting goods from one location to the next. With all these factors at play, numerous strategies can help owner-operators negotiate lower freight rates:
1. Conduct Market Research
Regularly monitoring current market conditions and trends can significantly benefit owner-operators looking to boost profits. Identify industry benchmarks and compare your business's rates to ensure you are an attractive and competitive option.
Stay informed on the latest industry changes and keep track of your competitors' rates. Consider reaching out to other professionals in the industry to ensure you have a solid understanding of the current freight standards to avoid losing profits.
2. Track Cost-Per-Mile
Always track cost-per-mile for your business. Understanding how much it costs to run each truck in your fleet allows for more informed decision-making, helping you land better deals.
You can use a cost-per-mile trucking calculator, or you can do the math on your own. Begin by identifying all your variable and fixed expenses, such as:
- Fuel
- Insurance
- Maintenance
- Permits
- Overhead expenses
Then, divide the vehicle's total miles for the month from your overall expenses. This metric is a powerful negotiation tool and can help you justify higher rates.
3. Build Strong Relationships
Another effective strategy for negotiating favorable freight rates is establishing strong connections with freight providers. In demonstrating your business's reliability and consistency, you can foster positive and mutually beneficial relationships.
Communicate your value by sharing metrics like your on-time delivery record. Implement a feedback loop to continuously improve your performance and strengthen your partnerships. Be honest about your business and establish yourself as a reliable, trustworthy partner.
4. Leverage Volume Guarantees
By committing to a guaranteed volume of business, you can demonstrate your reliability and consistency as an owner-operator and negotiate more favorable rates with a shipper or broker. These guarantees can give you a stable revenue source and result in more attractive rates per shipment. Plus, this approach enables you to foster longer-term relationships with shippers and brokers for future business success and profitability.
5. Monitor Load Times
Owner-operators should monitor load times by tracking the duration it takes to pick up, transport and deliver a load. Optimizing load times enables you to enhance overall operational efficiency and subsequently cut costs, such as:
- Fuel
- Labor
- Idle time
You can use these positive performance metrics to negotiate better freight broker rates. Timely pickups and deliveries are key for boosting customer satisfaction and creating a great reputation for your company, leading to more referrals and, ultimately, more business. Monitoring performance and finding ways to continuously refine your freight operations helps you enhance service quality and establish yourself as a competitor in the industry.
6. Prioritize Great Customer Service
As an owner-operator, you have a lot on your plate. However, something you should never let fall by the wayside is providing excellent customer service. You and your broker have the same goal in mind — negotiating the best possible price for your operations.
You can set your business up for success by prioritizing clear, upfront communication about your insight on the industry, your specific rates and how you justify them. Brokers appreciate this type of directness because it shows them you value their time. Mutual respect is key to negotiating favorable rates for everyone involved.
7. Pay Attention to the Loads-to-Trucks Ratio
Understanding the loads-to-trucks ratio is essential for getting the best freight rates, which are directly impacted by supply and demand principles. Rates are typically higher when there are more loads than trucks and lower when there are more trucks than loads. And if there are fewer trucks, you have greater room for negotiations.
Tracking the loads-to-trucks metric helps your business gain the upper hand and score higher rates when your trucks are in higher demand.
8. Study Lane Fees
Researching lane fees can help you anticipate and account for expenses you may have overlooked. Different lanes have different protocols, so consider inquiring about potential expenses, such as:
- Fuel surcharges
- Permits
- Tolls
Knowing these costs may vary can help you plan your expenses more accurately and protect your bottom line. You'll gain a better understanding of the profitability of specific lanes. Use this knowledge to justify your pricing with shippers or brokers and negotiate rates that fully cover your costs.
9. Account for Deadhead Miles in Your Rates
Always track how many deadhead miles, or miles traveled with an empty trailer, are involved in a delivery. Ideally, you should aim to minimize these miles, as they add costs and decrease your operation's profits.
However, deadhead miles are inevitable for some jobs, so ensure you factor them into your freight rate negotiations to avoid losing cash.
10. Confirm Rates in Writing
As a reminder, always ensure your business receives written rate confirmation. If you do not have a signed, legally binding contract with your shippers or brokers, they are not obligated to follow through and pay your specified rates. Don't waste valuable time and money negotiating rates without a signature on the dotted line.
11. Save Time and Money Using a Toll Management Solution
Another top strategy for negotiating better freight rates is investing in a toll management solution. A platform like Bestpass helps owner-operators save time and money spent dealing with toll authorities and tracking their fleet, giving them more resources to successfully negotiate the best rates possible and protect their bottom line.
Save Additional Costs With the Toll Management Platform From Bestpass Today
As an owner-operator, you juggle many responsibilities. Don't let toll management bog you down further. Instead, turn to the toll coverage solution from Bestpass to streamline theses duties and save costs.
Our customers save an average of $280 each year on toll costs. You can choose from various plans and toll passes, including E-ZPass, Complete Pass or Horizon Scout. With on-demand reporting, you can explore a detailed breakdown of your tolling costs from the convenience of your mobile device.
Are you interested in learning more? Request a demo to see the Bestpass toll management platform in action today.
