The balance of power in the freight transportation industry has shifted.
After a period of tight capacity, which had given carriers the upper hand on freight rates, the pendulum has swung. Capacity is now outpacing demand, providing shippers with the upper hand in negotiating rates with carriers. Shippers have more choices and are putting pressure on trucking companies to reduce rates in an effort to retrieve recent rate increases. In many cases, what was a partnership a year ago has morphed into a more traditional vendor relationship.
What do you do if one of your shippers makes it clear you must reduce your rates to continue hauling their freight? Many carriers see only two options: either haul the freight at lower rates, or stop hauling the freight altogether.
Fortunately, there is a third option: Talk to your shipper about lanes and prices, about what freight works for you, and why. Before you can have that conversation, however, you must first have precise knowledge about:
- Your costs
- Your rates
- The market’s rates
- How the customer’s freight fits into your network
- And that’s where freight network engineering comes in.
Freight Network Assessments and Engineering
As trucking consultants, the first freight network engineering step we take is to conduct a freight network assessment. Our assessment provides a clear picture of profitability that breaks down the relative value of each customer’s freight on a lane-by-lane basis.
With this information, you can discuss individual components of a customer’s overall business, rather than treating their freight as an all-or-nothing deal. You are able to see how their freight fits—or does not fit—within your overall freight network and what price you need in each lane to be profitable. Instead of agreeing to an across-the-board decrease in rates, you will have the confidence to address each lane individually.
Sometimes the best choice is to walk away. While the desire to build and maintain business is strong, you have to be willing to abandon unprofitable freight. Hauling freight that loses money will put your company out of business. Being willing to refuse freight may be the best way to get the shipper to give you a rate you need.
Maximizing the Value of Data
By gaining a greater level of knowledge about your business through freight network engineering, you establish a stronger negotiating position. With the new information available, you can show customers why deals may or may not work. The information enables you to drive business to specific, more profitable lanes instead of capitulating to a shipper’s demands.
Freight network engineering also helps strengthen your brand. Most carriers do not know the profitability of individual lanes. Maximizing this information during negotiation will help to differentiate your company and brand value from the competition. Shippers are eager to work with partners who truly know their business.
Establishing an Edge
It appears that for the foreseeable future, surplus capacity will continue to put the balance of negotiating power in the hands of shippers. Until the scales begin tipping back the other way, carriers must identify methods to combat market adversity. The information available through freight networking engineering provides the edge to ensure your business remains profitable.
About the Author
David Roush is president of KSM Transport Advisors, LLC, part of the Katz, Sapper & Miller Network. With 30-plus years of experience, David’s focus includes freight networks, financial management, operational metrics, and optimization strategies. Connect with him on LinkedIn.
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Rate Reductions | Frieght Network Optimization | Trucking Profitability