Whether you’re working on your first load, a new customer, a new lane, or things have changed for many reasons, it’s important to understand how to price a lane out and quote your customer accurately. In this post, we’re going to look at the basics of pricing and how to offer a quote to your customer.
There is much more that goes into rates than I have time to cover in this post, so make sure you continue your learning and check out all of the other Freight 360 content to expand your knowledge base!
Understanding Factors that Affect Rates
Rates change all the time based on a variety of factors. Cyclical events such as the time of day, week, or year are predictable, and this allows you to forecast pricing changes in advance. Consider the amount of trucks available for dispatch first thing in the morning versus late morning when most available carriers have accepted load tenders. Later in the day you will see many trucks become available as they finish their previous deliveries. The same effect happens throughout the week as a lot of drivers attempt to back-haul themselves toward their home to spend their reset period with family. Seasonal changes through the year affect the shipping of certain goods such as produce, which takes up a lot of reefer and van capacity. The ratio of available trucks versus available loads is a simple supply/demand equation that drives truck prices up and down.
Outside of time changes, you will see external factors such as weather and trade affect capacity and pricing. Consider a natural disaster such as a hurricane or winter storm. Many drivers will attempt to leave an area that is likely to be hit by a storm, and demand for shipping will increase after the storm passes. Emergency relief in those areas can increase the demand for goods to be shipped into the affected areas as well. The effects of the COVID-19 pandemic this year has heavily impacted production of goods, in turn resulting in many trucking companies shutting their doors due to lost revenues. While we don’t always know what will happen to affect capacity and rates, we can be sure that some changes will happen.
Tools to Use
Historical rates are often great predictors of what to expect for future rates. You can look at a previous year’s rate fluctuations to predict when rates will rise or fall in the following year. You can also apply this technique to the time of week or day as well.
Technology makes rating much easier by compiling various data points and estimating current rates and sharing recent actual rates. RateView from DAT, RateMate from Truckstop.com and Sonar from FreighWaves are a few paid-for tools that offer accurate rates based heavily on market analytics and proprietary tools. Your TMS might also have rating tools that will allow you to view your company’s historical rates in addition to market forecasts. My recommendation is to use as many tools as you efficiently can within a reasonable budget.
Calculating the Rate
Using the tools mentioned previously, along with talking with actual carriers about your available loads, you can get an idea of the asking price for a truck in your lane. As a broker, you need to add your margin in to ensure you turn a profit on the transaction. The complexity of the load will often affect the margin associated with it. For example, a 1-pick 1-drop flatbed load of lumber or steel requires less work on the broker’s part than a 3-pick 2-drop temperature-controlled load of produce with specific tracking and update requirements. The same concept applies to various sectors of the market such as hot shot, heavy-haul, intermodal, cross-border, etc.
You will also want to consider your origin and destination when preparing and negotiating your rate. For example, it normally costs more per-mile to move a load into Boston, MA than it does to Chicago, IL. The reason for this and other geographical examples is simple: it’s easier for a carrier to get their next load if they end up in Chicago than if you send them to Boston. Boston ships less outbound than Chicago does. Florida is another great example. Produce season alone impacts demand in Florida. Think about sending a truck into Florida when it’s not produce shipping season. They have no where to drive but north to dead head to find another load. I always recommend having a map readily available in your office to reference as you learn which lanes pay more or less than others.
Selling the Rate
You’ve got a truck rate dialed in and you’ve added your margin; now it’s time to sell it to your customer. Giving your customer context as to why your rate is what it is will help them understand a potential price increase rather than passing on your service. You won’t win every lane every time, so don’t beat yourself up as you grow your book of business if a customer uses another broker after rejecting your quote. With experience and time under your belt, your value-add will often allow you to have higher rates and margin than others. Not every load is awarded on price alone, so make sure you understand what your customer is looking for.
Now get out there and start quoting!