Freight Lane Pricing | Final Mile 67
Freight 360
October 29, 2024
Nate Cross & Stephen Ruhe answer your freight brokering questions and discuss:
- How are freight rates determined?
- Are loads paying less than $2.75 per mile too cheap?
- Starting as a freight agent with no experience
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See full episode transcriptTranscript is autogenerated by AI
All right, welcome back. We got another edition of the final mile. This is the shorter podcast where we answer and, in this case today, react to your guys's questions and comments. Please take a moment to head to the website Freight360.net. You'll find our Freight Broker Basics course there. It's an educational option for you, along with all of our other content downloadable, watchable, listenable, if that's a word and share this with your friends. Subscribe, do all that good stuff and check out the sponsors in the description to support this channel. All right, first question Ben who sets lane prices and accessorial prices? I've seen lanes that offer extra money for tarps and others that don't pay anything extra. All right, well, this is kind of a two part question here. Do you want to do you want to answer where? Where, like the line haul rate comes from?
Speaker 2: 1:15So line haul rates and Dean's article last week and the weekly update really breaks this down between front haul and line haul very well.
Speaker 1: 1:26It's oh yeah, head haul and back haul.
Speaker 2: 1:27Yeah, it's supply and demand. So it's based on two things the number of trucks that can move a load in any given market and think of a market as defined usually 150 miles circle around a place is about the number or distance at which a truck will deadhead without charging additional money is rough, roughly what that means, right? So within that 150 mile circle of like LA to Chicago, for instance, right, if there are, for instance, 15 loads that need moved but only 10 trucks, that means there's more demand for shipping than there are companies that can provide the service of taking that shipment from LA to Chicago. Well, when there's more demand than there is supply, it pushes rates up. Okay, now to the other example and I'm actually going to pull his thing up real quick because there's a really good example in here where he explains the actual numbers and the other side of that is, if you're going into a market that doesn't produce a lot of freight, then you're going to have the opposite, meaning like there might be a lot more trucks there than there are loads to move. So then the price comes down. It's literally supply and demand. And I'm going to read some of these, right? So out of the 138 markets. The top 10 account for 28% of outbound freight and 24% of inbound. Now, of the top 10 markets, los Angeles is the least balanced, with 1.42 loads outbound for every one load coming in. So there's far more demand for a truck to ship out of LA than to ship into LA, meaning the price coming out of Los Angeles is almost always more expensive, meaning like a trucker will make more money on the rate for the exact same mileage than driving a load the same lane into Los Angeles. Supply and demand right.
Speaker 2: 3:21Elizabeth New Jersey is the second. That's a huge port city area 1.37 loads outbound for everyone that comes inbound. Now here's the opposite. Billings Montana is the least balanced backhaul market. For every 2.19 loads that come into Billings Montana, only one goes out. So for every basically two and a quarter trucks that go in there right, there's only one load to come back out. So the truckers are all fighting for whatever loads they can get to get back out. So when you've got a bunch of carriers calling in for the same load, it brings the price down because they all want at least to move a load without driving empty. So they take the best rate they can get.
Speaker 1: 4:05Let's break it down a little bit. Billings Montana Great example, right, if you're going to send, if I'm a truck driver and you're going to send me to Billings Montana, you better pay me a lot of money, because I'm going to be either fighting, for scraps or driving empty out of there is what that comes to For the next major market Next supply and demand, and the same goes for LA If you're going to send me to LA.
Speaker 1: 4:28I'm going to probably take it for fairly cheap because I know it's going to pay good getting out of there because how tight the market is.
Speaker 2: 4:32One last thing too. I think Florida is a really easy example to think about this in your head, because you can't come in from the east or the west. There's an ocean. You can only come in from Georgia or Bama, technically right. So when you see an equal market, meaning like there's not a lot of produce coming out of Florida, you'll see like two bucks a mile to come into, like Miami or Fort Lauderdale, and two bucks a mile to go back out for like the same lane.
Speaker 2: 4:57Now, as soon as like watermelons start to like hit or a big produce season pops, like at big brokers, like you can tell when it happens in the middle of the day, like at two in the afternoon, emails would go out and be like Florida just flipped. What that means is all of the produce shippers really start buying up all the trucks they can, which drives rates up to leave Florida. But then all the carriers that find out about this watching the load boards, see that happen. So they want to rush to get in there and they're willing to take whatever they can get to just get the high paying load. So then the carriers that are maybe in South Carolina will literally take like a dollar twenty five a mile to get to Fort Lauderdale or to Homestead where the freight and the produce comes out, and then they get three bucks a mile coming back out, right?
Speaker 2: 5:40So this constant shift of how much loads or freight is moving from any given market versus where the trucks are coming and going from is really what determines the rates. It's not like these set rates that anybody just decides, because the other big misconception is that huge shippers just determine this. Yeah, they have a little more leverage, so they can definitely throw their weight around to get more pricing advantage. However, at the end of the day, when that market moves, no one picks up their loads and that's why you see tender rejections or load rejections go up when a market shifts a lot. Because I don't care if, like I'm a truck driver and you're paying me a buck 90 a mile for the past two months, but I can go to a load board and get $2.70 a mile. All of a sudden you're calling your shipper and going sorry, truck broke down, driver's sick having an issue, and they really just go and grab a load off the load board and make an extra buck a mile to make up for that A lot.
Speaker 2: 6:33Yeah, that's exactly what happened.
Speaker 1: 6:34The second part of this question is about how the prices is presented to the driver. So I've seen some that offer extra money for tarps and others that don't. I'm assuming this is a very someone that's very new to the industry. There's no set accessorial rate, right? So if somebody needs tarps or pipe stakes or straps, there's not like a guaranteed pay that goes along with it. Now what a broker can do is say, hey, the line haul portion of this is, we'll say, $1,000. I'm going to pay you an extra $100 because you are going to have to have tarps and straps and you're going to have to tarp it and strap it yourself at the shipper, right, you can break that out so they see that they're getting paid additionally for it same thing.
Speaker 1: 7:22If there's like a driver assist or additional stops, or you could just say all in it's paying twelve hundred dollars. That includes your line haul fuel, tarps and straps, a little driver assist, etc. As long as you understand that, um, what's required of you and what the total pay is, then it doesn't matter how it's presented to you, as long as it's given to you in some way, shape or form. So, to answer the question, it's up to the broker or the shipper how they want to present that to you. But there is no standard amount to provide tarps or straps or anything like that. It's just some brokers will break it out. So you know that it's paying a little bit extra for that and some just say, hey, it's all in.
Speaker 2: 8:11And usually that comes from the shipper.
Speaker 2: 8:13I mean, at least from what I've seen in practice, is that most brokers will just price in line with the way the shipper asks for it, to just keep it simple. So, like the shippers that I've worked with, they're like I just want all in rates. Then I work with a carrier and go hey, just give me the all in rate for all of it. And you got some shippers are like no, hey, can you break out the lumper, can you break out the tarp fee? Then I'm going to break that out, usually for the carrier, cause I always want one side of the transaction to match the other Right.
Speaker 2: 8:43And Even if you look at Dreyage carriers within the same market, like in Chicago, you'll see drastic differences of fuel service charge versus line haul, versus chassis splits versus street turns, and they all have a chart and they're all a little different. So what we got to do as brokers is we compare all of them, do all the math and then look at the end number to figure out what your costs are likely to be. And again, there's no industry standard, because shippers prefer to do it differently, just on the way they like to do business and have always done it that way.
Speaker 1: 9:11All right, so our next? This is our reaction to a comment we got. It's gonna tie right into the discussion. We just had Somebody posted on one of our YouTube videos and they said there's no excuse for any load to be paying under $2.75 a mile. There is no excuse for any load to be paying under $2.75 a mile. If a broker refuses those loads from the customer, they will have to start paying more, doesn't?
Speaker 2: 9:31work like that at all.
Speaker 1: 9:33Like literally not true at all, and we'll break down both parts. Okay, $2.75 a mile, first of all, the national average for rates is less than $2.75 per mile. This all comes down to supply and demand, and you can factor fuel in there as well. If fuel goes up, the overall all-in cost will go up. But supply and demand really is the line haul part of it. So if you look at a rate, if you go to like DAT, look at the rating tool, it'll tell you, like line haul plus fuel or just line haul by itself, the line haul part will move based on supply and demand Right, how many shipments are available versus how many trucks are available. The fuel part will change based on the cost of diesel, right. And what we actually saw last year is well, not even just last year, in various times in history you might have line haul go up and fuel go down and your overall rate stays pretty flat, and vice versa. Or if you see both go up, you see a big spike.
Speaker 1: 10:38But it's not all just because of fuel or not just because of the market, it's because both things are happening. So that is why the 275 a mile um, anything less than that is is no excuse like no, that's false because, like your example, if I got a high paying load coming out of florida, I'm gonna go cheap to get in there so I can be part of that high paying load outage. That's just the reality. Now the second part if we all just stop taking those loads from customers, they'll pay more. Hypothetically, sure, but truckers said the exact same thing. They're like everyone stop taking loads paying less than this. Someone is going to take it. There are too many trucks on the road, too many brokers out there.
Speaker 1: 11:21Someone is going to take that load if you don't.
Speaker 2: 11:23That's market economics. And the thing is where I think a lot of these misconceptions come from is that, like, everybody just looks at their own operating expenses or they just kind of assume they should be able to earn this because somebody told them they should. But the reality is, even within trucking companies, there's huge differences in what is profitable versus unprofitable, based on maintenance costs, driver wear and tear, the type of freight you're moving, how old the vehicle is, insurance costs, the credit rating of any individual company and its ability to pay more or less for things. There's so many variables that determine whether a trucking company's break even at $2 a mile, $ buck 90 amount to 25, whatever that number falls. Those are just examples. Right, like are all determined by lots of things how many people work at that company? Do they have an office they pay for? Did they pay too much for that office? Do they have a large yard that they did need, that they don't need now, like?
Speaker 2: 12:16there's so many things that determine the break even cost of a business that like there is no set number and like, yeah, some bigger companies have advantages but there's not too many advantages. And again, we worked on a course with DAT that's going to be coming out soon that is going to help people really break down these things, to understand them better so that they can be more profitable. Because it's not just about revenue. It's also about managing where the money is going out the door, how often it is, and what we're spending things on. And that's for any business trucking company all the way to companies that make software, to car manufacturers Every company in the entire economy functions in that way. It's not just your sales and your top line revenue of money coming in the door, it's also how much of that you get to keep after you pay everything.
Speaker 1: 13:01Yep, Income and outgo All right. Last question I just took an agent position and I am new to the industry. Did I make a solid career choice or is my goose cooked? I love the way that he asked that, so I'll break it down a little further. He did mention he signed down at Armstrong Transport. They're one of the larger agentbased companies. So here's what I'll say about the agent world, because I have this conversation multiple times a week with people that reach out to Pierce Roll Watt.
Speaker 1: 13:30If you are looking to contract directly as an agent for a brokerage and they expect you to have experience and customers to answer this guy's question, bad choice. You're setting yourself up for failure, meaning they're not going to train you on how to be a failure, meaning they're not going to train you on how to be a freight broker and they're not going to give you accounts. My guess is that if a company like Armstrong is going to train you on how to be a freight broker, If this guy just started working there, Armstrong probably didn't contract him directly. He probably got hired by an agent or an agency of Armstrong and maybe they're going to train him and help him out and in that case then maybe he's OK. He's coming in in a bad you know a rough market, but if he can succeed in the rough market he's going to flourish, you know, exponentially when the market is in the opposite of where it is now. Exponentially when the market is in the opposite of where it is now. That aside, OK, if you're going to go the agent route and contract directly with a broker and they're going to offer you training or mentorship or customers to work on, I think there's a balance, right. How good is this person going to train me? How much of their time are they going to give me? What is the commission split on all that? There's a lot to weigh. That goes into this.
Speaker 1: 14:47So what I would say is, if you are looking to become an agent, I would talk to a lot of different companies and ask them like you probably don't know what questions to ask, right? So you should probably be asking them things like hey, what? What are you providing to your agents, Right? Are you training me? Do I need to be already experienced? What are you paying, commission? What's the software you provide for me? Is it included? Do I have to pay for it? You know what kind of help can I get from you guys. If I deal with X, Y and Z with a customer or something that I've never experienced before, Is there expertise to help me out? Those are things that you have to figure out.
Speaker 1: 15:23So in this guy's case, if he's brand new with no experience, it would be a bad move if his agreement involves no or limited training and education and mentorship, limited support, you know, no customers or advice or help with how to get customers. But if they are going to provide that stuff for him fill in the knowledge gaps, coach him along, mentor him along then his only uphill battle is the market. And there's still plenty of freight moving, A lot of people making a lot of money right now. You just got to do the right things that we always teach and it's a numbers game at that point. So that's my take Ben, you've been an agent, You've had folks as agents, you have been a W2. You've been started, You've been in like every business model I can imagine. So what would be your take if someone's like hey, I'm brand new, I want to become an agent.
Speaker 2: 16:25Would you add anything else or change anything? I said no. The only thing I would add is that, like I am this is my personal opinion and the way I've gone about my career is that I put a huge emphasis on learning over income for the first year or so, because once you learn it, that stays with you forever and then you can accelerate the income later. What I find very difficult for lots of folks and I've worked with plenty of clients that have tried to do both like they want to learn everything themselves and they want to be an agent because they want to keep all the profit for themselves. They tend to not move fast enough to make enough money to support themselves and they end up having to go leave and do something else. So for me, I've always had the preference of yeah, it sucks and like yes, it takes patience to go work underneath somebody and, no, you're not going to make as much as you would want to. Like, you're probably going to make in the seventies or eighties, even if you're really good in your first year or so. But that knowledge and what you learn being around people, that experience to me is the thing that actually accelerates you to make the real money. Now, again, there's tons of exceptions to all of these. I've met folks that have done that and done really well, but for me, like I always emphasize the learning piece first, because once you get that foundational understanding of how it works now you can move much quicker.
Speaker 2: 17:36It's very difficult to be moving quickly and making money while you're learning because there's just so many questions that come up and if you don't have a mentor or somebody you can trust to go to for these answers of these questions, then, like, you just end up losing what you spent so many weeks and months developing. Like relationships with a prospect or a shipper can take three, four months to get in the door. And I mean if you make a mistake on a load, your third or fourth load in, like they might put you on the sideline for another two months and now you got to start that whole process over again, where, again, I think, making steady progress and learning gets you there quicker overall. How long, if you want to enter this industry? How long do you intend to be in it? Do you want to do this the rest of your career? Five years, 10 years, three years? What is your timeline? Because if that is five years or longer, there's a fray buzzer with a stone ringing.
Speaker 2: 18:29Yeah, you're going to be in a down market anyway at some point in there and an up market, so you need to learn how to survive in both. And if you really want to do something for the next five or 10 years and make a career out of it, what is one year to go? Learn it faster so that you can make a lot more in the next nine. To me, you end up with a lot more in the long run when you're patient in the first place.
Speaker 1: 18:48It's an investment in your future. If you are, if you guys are interested in the agent model and learning more. We're going to be doing an episode, I think in the next month, Right On with Matt Perkins, who has been on here before. We're going to talk about some of the risks and things to consider and look out for if you're going to bring agents on. So good discussion. That's a wrap on this week's final mile Final thoughts.
Speaker 2: 19:18Mr Kowalski, Whether you believe you can, or believe you can't. You're right.
Speaker 1: 19:24And until next time go Bills.