The logistics industry is complex and competitive, and shippers and carriers are constantly looking for ways to improve their bottom lines. One way to do this is by negotiating win-win rates.
A win-win rate is a rate that benefits both the shipper and the carrier. It is a rate that is fair and equitable, and it takes into account the needs of both parties. Effective freight rate negotiation requires shippers to understand where leverage can be applied. With the best negotiation skills training, a carrier can bargain with shippers for better rates and services.
There are a number of tips that shippers and carriers can follow to negotiate win-win rates.
Negotiate win-win rates
- Check your shipping demand. In a free market, where shipping companies have sufficient capacity, the demand for a particular type of shipping will be the primary factor in determining the price. If your cargo is uncommon or there are few trucks that can transport it, the price will likely be higher. However, if your cargo is in high demand among trucking companies, they will be eager to compete for your business and offer you the best rates.
- Do your research. Before you start negotiating, it is important to do your research and understand the market rates for your type of freight. This will help you to come to the table with a realistic expectation of what you should be paying.
- Be prepared to compromise. No negotiation is ever going to be perfect, and you will likely have to compromise on some of your demands in order to reach a deal. Be prepared to do this, and be willing to walk away from the table if you cannot reach an agreement that you are comfortable with.
- (but also) Be prepared to negotiate. Before you begin negotiations, be aware of your requirements and the market. Examine shipping industry trends. Investigate the impact of currency rates, politics, and economics on the industry.
- Identify your volume needs and budget. Will your monthly shipments increase? Will you require a standard service-level agreement (SLA)? What will be your primary logistics key performance indicators (KPIs)? Some of the essential KPIs you might want to include in your SLA are:
- Mutual inventory management: Tracks shipments
- Returned materials authorization: For refunds and credit by your customers
- Quality assurance upon receipt
- Freight auditing and cost reduction: To reduce rates as you increase the shipment volumes
- Compare prices. Carriers can quickly obtain competitive quotes from a variety of sources, including market data and rate indexes. Before meeting with your carrier, find out what their competitors are charging. Some price factors to compare include:
- Insurance
- Accessorial charges
- Weights and dimensions
- Lead times
- Transit requirements
- Origin and destination zip codes
- Spot rates, contract rates, and special project rates
- Read the Fine Print. Beware of hidden fees or inflexibilities that may not meet your needs. Some examples of fine-print items are:
- The time allowed for delivery and pickup
- Demurrage charges
- Fees for delivery
- Charges for holiday and weekend deliveries
- Quote for All Your Needs. Often, a carrier will request a quote for a single shipment or a subset of shipments. For example, a farming wholesaler may request quotes for shipping frozen produce from Alabama to Arizona. Requesting quotes for all of your business needs can encourage the carrier to provide a better solution and more competitive rates.
- Leverage Group Buying (Consolidation). For most small and medium-sized businesses, it is hard to use their shipping volumes to negotiate lower rates. However, by consolidating your shipment with other companies and possibly creating a buying group, you can use the group’s collective buying power to secure discounted shipping rates. Additionally, skilled negotiators can lock in these rates for six months or more. This extended contract length makes it easier to budget and predict your shipping costs.
- Build a relationship with your carrier. The more you work with a carrier, the better understanding you will have of their needs and the more likely you are to be able to negotiate a win-win rate. Take the time to build a relationship with your carrier, and you will be more likely to get the best possible rate.
Negotiating win-win rates can be a challenge, but it is well worth the effort. By following these tips, shippers and carriers can improve their bottom lines and build strong, lasting relationships.