When you think about purchasing a service in the same context as buying a product at the store you can visualize the parties that exist within the exchange. Let's chat about three particular parties: Customer, Broker, and Carrier.
A broker buys the transportation service from a carrier and sells it to the customer. We define a buy rate as the price for the transportation services from the carrier to the broker. We can then define the sell rate as the price for the transportation services from the broker to the customer since we are using a freight brokers perspective. There are several occasions where a customer will give you their targeted or maximum rate that they are willing to buy our services for. If this is provided by the customer, you now have your sell rate. You can work with this to determine a fair buy rate from a carrier by using the provided rate and the other resources mentioned earlier.
Calculating and negotiating buy rates with carriers and sell rates with customers could be considered an art form. Pricing accurately takes good information, resources, some experience, and a bit of intuition. While your buy and sell rates should accurately represent current market rates, you may run into some customers and carriers who have expectations for a rate that do not truly reflect the market. In those scenarios, do your best to match their expectations and provide them with a bit of education on the market based on your experience and resources available.
Tools to use when negotiating rates
Lets chat about some resources you may use to help calculate a rate. The first being load board software. We can chat more specifically about DAT Express and DAT Power. DAT has an incredible rate feature built into the load board subscription which offers 30-90 day historical rate data. After searching a particular lane, DAT will show the 30-90-day average as well as the minimum and the maximum range. While DAT is not always completely accurate or may not meet your customer expectations, it is a good starting point for you to begin calculating a buy rate and sell rate.
Another great resource provided by DAT is their Load-to-Truck Ratio feature. This tool gives you a better idea of the current capacity for all equipment types. When there are more loads than trucks, capacity is limited and you will likely see higher rates from carriers. When there are more trucks available than loads, you will likely see lower rates from carriers because they are forced to compete with one another over limited freight opportunities.
Soshaul Insight: Using their knowledge of lanes through experience or word-of-mouth, carriers can leverage higher rates for lanes they know have a limited number of available trucks. Carriers can also use load boards like DAT to search for posted loads by broker/agents. If capacity for a lane is low, a carrier can offer their services and negotiate a higher rate to move the freight.
Alternatively, brokers or agents searching for trucks on DAT should pay attention to the number of posted trucks on that lane. If there are many trucks in that area at that given time, you have a better chance of negotiating a lower rate because more options are available. If there are limited trucks available on that lane, you will be more likely to accept higher rates due to having no other options available.
Additional resources include historical data, carrier quotes, and customer data. When quoting a customer or calculating a buy rate, it is likely not the first time you have quoted the lane or a similar lane. By keeping records of previously coordinated loads and quoted lanes, you can reference previous quotes and sell rates. Use this information to guide you on what rate the customer is expecting or what you can expect to buy the truck for. But remember, rates can change drastically within a single week or several months. A load you sold for $1500 in July may have experienced a decrease in capacity and an increased buy rate therefore it will likely cost more to coordinate than it did in the past.
A great way to understand current market rates is straight from the horse’s mouth. You can gather rates from available trucks on the load board or gather quotes from a few of your “go-to” carriers.
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Soshaul Logistics LLC and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It is meant to serve as a guide and information only and Soshaul Logistics, LLC - Copyright 2023 - does not assume responsibility for any omissions, errors, or ambiguity contained herein. You should consult your own tax, legal and accounting advisors before engaging in any transaction or operation.